Interest rate worries send sterling to fresh lows against euro

Tom Tong14/Apr/2011Currency Updates

GBP

Many investors are becoming increasingly concerned that UK interest rates will lag behind those in the Eurozone, helping sterling to fall to a five and half-month low against the euro. This was mainly caused by the decline in inflation on Tuesday. UK labour market data on Wednesday showed that the jobless rate fell to 7.8% in the three months to February, below forecasts for a reading of 8.0%. British jobless claims increased unexpectedly in March due to changes in benefit rules. At the same time, the labour market conditions strengthened, with unemployment easing and the private sector managing to compensate for some job cuts in the public sector during three months to February. The number of people claiming Jobseeker’s Allowance rose by 700 in March to 1.45 million, labour market statistics from the Office for National Statistics revealed Wednesday. This was in contrast to an expected decline of 3,000 and February’s 8,500 fall.

USD

The dollar fought back to pare some of its steep recent losses versus the euro on Wednesday, bolstered by data showing that US consumer spending was up in March. President Barack Obama announced plans to cut $4 trillion in cumulative deficits within 12 years. The plan calls for ending the Bush-era tax cuts for the wealthiest Americans.

Earlier, the Commerce Department said that retail sales rose by 0.4% in March following an upwardly revised 1.1% increase in February. Economists had expected sales to increase by 0.5%.

EUR

The euro kept its recent gains versus the dollar on Wednesday. Eurozone industrial output growth accelerated in February, but at a slower-than-expected pace, signalling sluggish growth ahead for the 17-nation euro currency bloc. Production grew a seasonally adjusted 0.4% month-on-month, slightly faster than the revised 0.2% increase in January, according to figures released by the Eurostat on Wednesday. Economists had forecast a 0.8% rise. The euro has also been bolstered by the uncertainty in regards to Portugal having been put to rest. Worldwide investors feel the Eurozone stocks, especially those of Greece and Ireland, are massively undervalued and therefore offer excellent value.

Elsewhere

On Thursday Singapore tightened its monetary policy for the third time in a row, stepping up its fight against inflation, which is expected to remain elevated on the back of high global commodity prices. The Monetary Authority of Singapore (MAS) said in its semi-annual monetary policy review that it would “re-centre the exchange rate policy band upwards, allowing further gains in the Singaporean dollar. Singapore’s gross domestic product jumped an annualized, seasonally adjusted 23.5% in the first quarter of 2011 compared to the previous three months, the Ministry of Trade and Industry said in an advanced estimate on Thursday.

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Written by Tom Tong

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