Euro loses ground despite Cypriot resolution as the pound loses ground against the dollar
26/Mar/2013 • Currency Updates•
In the first session of the week sterling climbed against the euro, driving the currency pair to almost 6 week lows, but retreated the most in 3 weeks against the dollar, signalling a neutral overall performance. The pound suffered from disappointing BBA Mortgage Approvals which dropped in February. The FTSE 100 weakened marginally by -0.28% whilst gilt prices rose.
The pounds performance was surprising considering ratings agency Fitch placing the UK on a negative outlook on the Friday of last week. Last week the pound climbed after the BOE minutes showed that the monetary policy committee (MPC), kept rates and quantitative easing (QE) on hold due to worries about “unwarranted depreciation” of sterling. Just to recap, six members of the MPC voted against further policy easing in March, with the other three including the governor pushing for £25bn more QE.
Today we see the Nationwide Housing Prices (YoY) for March which is expected to increase to 0.9% from a previous 0.0%. Positive figures may prompt investors betting against sterling in recent weeks to cut their short positions. A short position is a strategy which get profits when the underlying asset, in this case currency, falls. As such, when these positions are unwound the underlying asset will typically strengthen.
The euro suffered big losses against the greenback yesterday hitting lows not seen in the last 3 months. The move was despite Cyprus agreeing to shrink its banking sector in order to obtain EUR 10.0B in emergency funding, but the lingering threat of a bank-run continued to spook investors and saw the euro sell off. The longer term implications of the handling of the Cypriot bailout may leave investors spooked and spur a near-term shock for the single currency.
Euro-group President Jeroen Dijsselbloem said the bailout package for Cyprus would serve as a new template for addressing financial turmoil in the euro-area, and this derived a massive drop in the currency until the end of the afternoon session, after the Dutch Finance Minister rectified stating Cyprus is a specific case. Peripheral yields jumped the most in three days and the main equities indexes such as Eurostoxx 50 dropping 1.21%.
No important macro data will be released today for the Eurozone, but the concerns remain over the Cypriot bailout negotiations and rumors that Slovenia could be the next sovereign asking for a bailout. Any further downgrade of Italy’s credit rating by Moody’s could trigger a further decline in the shared-currency.
The greenback strengthened on Monday, with the U.S. dollar Index bouncing back from a fresh daily low, as the global reserve currency continued to gain ground during the European session as demands for safe haven assets such as the USD, CHF and JPY where high.
Today, a number of important figures from the other side of the Atlantic are due. Durable Goods Orders in February and Consumer Confidence for March are expected to be positive with New Home Sales likely to consolidate last months good reading printing 0.42M from 0.437 (MoM) in February. If this data, specially Durable goods orders show better than expected numbers, it might prompt a growing number of Fed officials to adopt a more hawkish tone for the world’s largest economy as the recovery is gradually gathering pace.