UK credit rating under threat as German ZEW prints positive

Tom Tong20/Feb/2013Currency Updates

GBP

Sterling continued its losses against most major currencies yesterday. This is due to the increased speculation that Standard and Poor’s will downgrade the UK’s AAA credit rating. Sterling fell to a 7 month low against USD.

There is risk of a large scale devaluation for the pound, amid fears that the pound is at risk of following recent movements of the yen. Martin Weale, the Bank of England rate-setter stated that the pound is still too high for a UK recovery, this coming after sterling’s biggest weekly loss since last summer.

More pressure for the pound is expected due to the UK’s job report and Bank of England minutes due today.

EUR

Some positive German sentiment data caused the European Stock markets to end the day higher, pushing the single currency to highs against sterling. The sentiment data figures from the German ZEW survey rose dramatically for a second consecutive month, reaching the highest levels since April 2010. This has led to increased belief that the eurozone is bouncing back, and that 2013 will be a year of recovery.

The construction industry in the eurozone continues to falter, with output sinking to its lowest levels since 1996, with output down nearly 5% over the last year.

The ECB is worried that the continued strengthening of the euro could affect their forecasts for growth and inflation. Continued gains may force further stimulus from ECB.

Poland, Eastern Europe’s biggest economy, has said that it will decide on whether to join the euro in 2015. Politically this shows a small movement towards potential adoption of the euro, and a vote of confidence in the single currency.

As usual the biggest data releases in the eurozone will come from Germany, who will be releasing their CPI and PPI figures.

USD

The dollar remained flat for most of yesterday. Although there was some negative manufacturing data for the States, with factory production down 0.4%. However due to the upward revision of the previous two months figures, the effect of this data will be muted as the trend is still positive.

The rise of residential construction seems to be faltering in the States, and has dropped from a four year high.

Important news out of the States today is the release of the PPI figures. With the consensus believing that the figures will be lower than previous, this bearish information could cause Dollar to weaken.

ZAR

In other news, expect more volatility with ZAR; the violence has re-erupted at Anglo American Platinum, with 4 security guards killed and 13 people injured.

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Written by Tom Tong

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