UK awaits GDP figures and Bernanke's speach

Tom Tong26/Aug/2011Currency Updates

GBP

Sterling slipped to two-week lows against the euro on Thursday as a sovereign account bought the common currency for month-end requirements, while the pound eased against the dollar as stock markets in Europe and the U.S. traded in negative territory.

The pound was little moved by a weak CBI survey that showed British retail sales fell at their fastest pace in over a year, underlining the fragility of the UK recovery.

“The CBI survey was pretty close to expectations which is why we did not have too much of a reaction on sterling,” said Adrian Schmidt, FX strategist at Lloyds TSB. “We heard some sovereign buyers in the euro/sterling cross which probably drove the euro higher.”

Sterling was down 0.3 percent for the day against the dollar. Traders said weakness in European and U.S. stocks put some pressure on the pound in afternoon dealing. Previously it had been boosted recently against the dollar, soaring to a 3-1/2 month high last week on merger and acquisition flows and a rise in foreign investment in UK gilts on the back of euro zone debt problems and U.S. sovereign worries.

USD

The US dollar was seen trading moderately higher yesterday as traders began to re-evaluate the recent dip in stock values and as anticipation to Fed Chairman Ben Bernanke’s testimony during the weekend Jackson Hole Symposium.

A short series of data released yesterday painted a weaker picture for the US economy’s growth. Weekly unemployment claims saw a worse than forecast rise, hitting 417,000 for the past week. A housing report showed growing sluggishness in mortgage lending growth and the Richmond Manufacturing Index dropped from last month’s reading. However, so far this news has helped drive the USD higher as traders flee risk.

With a relatively heavier news day expected Friday, dollar traders should be anticipating some moderate currency movements brought about by average end-of-week liquidity. The economic calendar will be lacking in specific focus with several reports coming from Australia, Great Britain, Japan, the US and the euro zone. The US economy will be strongly in focus with reports on GDP, consumer confidence, and Bernanke’s testimony.

EUR

The euro was seen trading lower yesterday in light of data releases suggesting stagnation in Germany. The lacklustre performance of global stocks also drove many regional investors away from the EUR despite the relative potential is has for making gains should more investment flee the United States.

While growth variances between the US and Europe came into view this past week, the higher yielding assets like the GBP and EUR appeared positioned to lose as traders turned away from risk. The growth in risk aversion may have many investors choosing to store their value in lower yielding currencies, like the USD and CHF as the week comes to a close, though investments in US Treasuries contradict the idea behind the ratings downgrade by S&P. Nevertheless, the greenback is on the rise once more.

As for Friday, the euro looks to be anticipating an evaluation of its recent downturn against the other major currencies with mild bias further leaning to the downside. The euro zone will be publishing few economic events on today’s calendar, though. Traders will be following data emanating from the American and UK economies today as a mild string of reports are expected from both.

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Written by Tom Tong

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