Eight month lows for Sterling: UK growth & stimulus worries; Sarkozy & Merkel: Greece to remain in Euro

Tom Tong15/Sep/2011Currency Updates

GBP

Sterling fell to eight month lows against the dollar on Wednesday, as concerns over the impact of the euro zones debt crisis may impact UK growth and British banks, prompting a further requirement for stimulus from the Bank of England. Mounting worries over the euro zone’s debt problems kept investors wary of riskier currencies with the USD benefiting from a flight to quality and holding close to near seven month highs against a basket of currencies.

Sterling’s recent losses have been compounded by a string of weak economic data in the UK, which many analysts believe could force the BoE into pumping more money into the economy to try and stimulate growth.

Data on Wednesday showed the number of Britons claiming unemployment benefit rose slightly less than expected last month, although the number of people without work on the wider ILO measure showed its biggest rise in two years.

A severe round of fiscal cuts from the UK’s coalition government to try and bring British public finances back into line may also be having a detrimental effect on the economy, and act as another negative pull on the pound.

EUR

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are “convinced” Greece will stay in the euro area as they faced international calls to step up efforts in fighting the region’s debt crisis.

The euro rose after the leaders of Europe’s two biggest economies issued a statement yesterday following a telephone conversation with Greek Prime Minister George Papandreou. Papandreou committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements from governments in Berlin, Athens and Paris.

European governments are aiming to ratify a July 21 agreement to bolster the euro region’s bailout fund and extend a second rescue to Greece. Investor skittishness over the spread of the debt crisis has raised banks’ funding costs and roiled markets worldwide.

The direction of the Swiss franc (CHF) has been sharply pressured into one of distinct bearishness among investors as the Swiss National Bank (SNB) rate decision approaches. Against the US dollar (USD) the franc has actually been trending mildly flat despite the greenback’s bullish moves against its other currency rivals. However, the Swissie has seen some setbacks brought about by poor regional fundamentals and a general atmosphere of risk flight, particularly following the SNB’s move to peg the CHF to the value of the EUR at 1.20.

A mood of deep pessimism is growing in regards to the investment in Europe at the moment. Market bears still seem to be gnawing on the EUR’s strength, sapping its value as its peripheral members struggle with bond auctions and other financial woes. Switzerland was formerly in a position to capitalize on the flight to safety, but saw its exporting capability deeply gouged by an unremitting currency appreciation. The SNB move to peg the currency has so far done its job by keeping the CHF’s rise in check.

USD

The US dollar was still seen trading bullish on Wednesday after retail sales reports out of the United States disappointed many investors and drove traders towards safe haven assets. A sudden wave of risk aversion seems to have helped the greenback surge this week and data so far has only reinforced this momentum. Additionally, pessimistic data was released from several other economies as well. Switzerland inflation at the producer level appears to be in decline, industrial production across the euro zone and in Japan is stagnating, and the Australian housing market is contracting. The only optimistic piece of data out yesterday was the employment reports from Great Britain which saw, not necessarily job growth, but a not-as-bad-as-expected rate of unemployment growth.

With another unusually intense news day ahead, traders are anxiously awaiting the large string of reports out of the US which should clear up the picture somewhat in regards to inflation, manufacturing, and industrial production. The Current Account will also be published, though its impact is not expected to be as high as the manufacturing reports out of New York and Philadelphia. Traders are looking towards another bullish day on the dollar should news continue to disappoint.

Print

Written by Tom Tong

Vestibulum id ligula porta felis euismod semper. Donec ullamcorper nulla non metus auctor fringilla. Cras justo odio, dapibus ac facilisis in, egestas eget quam. Morbi leo risus, porta ac consectetur ac, vestibulum at eros. Donec ullamcorper nulla non metus auctor fringilla.