GBP pulls back against the EUR but loses ground against the USD
11/Aug/2011 • Currency Updates•
Governor Mervin King’s comments did little to help sterling yesterday when he downgraded both inflation and growth expectations. The economy is set to grow at a slower pace – at a rate of 2.0% for the economic year rather than the previously forecasted 2.5%. Inflation, on the other hand, is set to peak at 5.0% before dropping to 1.8% in 2 years.
UK data today may help GBP to reverse some of yesterday’s losses. We will see Consumer Confidence figures– although Eurozone worries could see GBP rise against the euro, whether the data comes in positive or not.
Yesterday was another bad day for the markets – after recovering some losses the previous day, high yielding assets fell with US equities falling by nearly 5%. On the flip side, gold rose to a record high.
With regards to the greenback, risk aversion, the Eurozone debt crisis and fears of a double dip recession along with better-than-expected US data helped the dollar to make gains, and despite the Fed confirming economic activity being weak, economic data came in better than expected. The US Fed budget balance came in at 129.4 billon rather than then the expected 137.4.
The euro fell on the back of rumors that France could be the next country to lose its triple A-rated sovereign rating and that Societe Generale was in financial trouble. Both these rumors were later quashed by the financial services company and by all three major rating agencies. Despite this, the damage had already been done and the euro was unable to reverse its losses against its counterparts.
Mixed euro data did also not help its cause, with French Industrial Production coming in lower than expected at -1.6% whilst German Final CPI was in line with forecasts, at +0.4%.
There is no major data out today; it is more than likely that the euro will move in line with market sentiment – further trouble, as the euro is not seen as a safe-haven currency.