Sterling continues decoupling from risk assets, following dismal housing data

Tom Tong29/Jan/2013Currency Updates

GBP

The pound continued its dismal start to 2013 falling to a 13 1/2 month low against the euro whilst retreating to its lowest level since August 20th against the dollar. In the wake of last week’s GDP report, the pound posted its third consecutive day of losses against the common currency after a report was published showing U.K house prices fell 0.3% in January from a year earlier.

Matters were not helped when Mark Carney, the governor of the bank of England in waiting, stated “central banks around the world have more room to ease monetary policy if needed”. This statement, combined with the negative GDP report, have prompted inflation expectations to rise to the highest level since June 2011 on bets for more stimulus. This in turn has removed investors’ appetite for sterling, and as such has been the catalyst for the poorest start to a year against the common currency since it’s introduction in 1999, totalling a 5.1% loss.

EUR

In the absence of any significant economic news, the euro traded higher against the pound; however, it pulled back from its recent 11-month high struck against the dollar on Friday. The euro has rallied significantly against most major currencies in 2013 and only investors booking profits seem to be detracting from its gains.

Analysts have stated that the outlook for the eurozone has improved significantly coinciding with the more positive economic news we have seen published from the region, especially Germany. The euro has also benefited from recent news regarding eurozone bank repayments to the ECB, suggesting funding conditions have improved.

USD

The dollar posted gains against most major currencies on Monday in light of a mixed day for economic news. First out from the Commerce Department came the orders for durable goods in December. This was largely positive as an increase of 4.6% against November has given encouraging signs for the Manufacturing Sector and economic output on the whole. This news was later tempered by pending home sales figures for December which showed a substantial decline of 4.3% against November.

Today is light in terms of major economic news, however attention will be on the Consumer Confidence figure for January with the consensus showing a slight drop to 64.0 from 65.1 in December. The Federal Reserve will also begin their two day meeting today with the interest rate and monetary policy decisions scheduled for Wednesday.

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Written by Tom Tong

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