Daily Update On The Foreign Exchange Markets 03/06/09
Posted: Wednesday, June 03, 2009
by Phil Bennetts
Sat WorldWide
GBP/USD GBP/EUR
The Pound resumed its upward momentum yesterday, rising to a fresh seven month high 1.6610 versus the U.S Dollar, while the UK currency also rose to an annual high of 1.1640, as reports on the housing market and manufacturing fueled optimism that the worst of the recession is over. In addition, the supply of credit to British companies deteriorated at a slower pace in May.
According to the report from the Bank of England, lenders granted 43,201 home loans in April, compared to 40,038 the previous month. Economists had predicted a 41,000 increase, as house prices stopped falling for the first time in 20-months. A revival in lending may lay the foundations for the recovery in the housing sector, as additional government stimulus encourages banks to lend again.
The Bank of England are expected to keep interest rates steady at a record low of 0.5% on Thursday and continue with its asset insurance program of pumping newly created money into the economy to help growth. George Buckley, chief UK economist at Deutsche Bank AG in London, said that "it's encouraging, though it's significantly less than the peak, we need to see it rise further yet before we can say that the rout in house prices has ended."
Net lending secured on houses rose by more than half to 973 million in April, while average house prices held steady at 155,000 in May, after they declined 0.3% in April. A separate report from the Nationwide Building Society showed that home values unexpectedly jumped by the most since 2007. UK consumer confidence also improved over the past month, matching the highest level in almost a year.
A survey from the Confederation of British Industry yesterday showed that companies expect the supply of existing credit to stabilise, despite indications from the Royal Bank of Scotland Group Plc that bad loans may increase this year. The Deputy governor of the Bank of England Charles Bean, said last month that the supply of credit may "remain impaired for some while". Policy makers received backing from Treasury to print as much as 125 billion in new money and spend it on assets, including government debt in an effort to get banks lending again.
The Pound extended its gains against the U.S Dollar yesterday, rising through key resistance at 1.6526, after data in the U.S showed that the number of Americans signing contracts to buy existing properties climbed by the most in over seven years. Geoffrey Yu, a foreign exchange strategist at UBS AG in London, said that "the Pound-Dollar is moving on risk and we're treating it as a prime vehicle to express a rebound view, any positive news and people will get into it."
Further evidence of a revival in the housing market will reinforce speculation that record low interest rates and government stimulus measures will help revive the UK economy, after it contracted 1.9% in the first quarter, the most since 1979. The Pound also stood firm yesterday, despite UK stocks retreating from the highest level in almost five months, after Barclays Plc's Abu Dhabi investors sold a stake in the lender.
The FTSE 100 Index lost 0.7% to 4,477.02, erasing some of Monday's 2% rally but the increased optimism surrounding the global economy means any retracement is unlikely to last. The Pound may continue to strengthen against the Euro because "recent UK housing data are showing consistent signs of recovery", according to a statement from RBS Plc. In addition, Gerry Gibb, a currency strategist at RBS said yesterday that the lack of momentum in the Euro "is consistent with the more muted recovery in economic data that the other major or developing economies".
EUR/USD
The Euro continued to take full advantage of broad Dollar weakness yesterday but the single currency's rally against its U.S counterpart may be entering its "last stage," and investors would likely benefit from selling the 16-nation currency against the Dollar, according to a report from UBS AG. The Euro may weaken towards $1.3000 within the next three months, as "equity and bond flows have the potential to surprise and could lend support to the Dollar".
The Euro traded at a high of $1.4168 versus the Dollar yesterday, gaining 6.3% over the past month, to the highest level this year. However, reports yesterday showed that European unemployment rose to the highest level in nearly 10-years in April, as the worst global economic slump in more than sixty years forced companies to cut production and slash jobs.
The jobless rate in the Euro-zone increased to 9.2%, from 8.9% in March, the highest level since September 1999 and exceeded economists' prediction of a rise towards 9.1%. The global slump has curtailed demand for Euro-zone exports and corporate investment, pushing the economy into the steepest contraction in at least 13-years.
The European Central Bank have been reluctant to follow the Bank of England and the Federal Reserve in cutting rates to near zero per cent. However, policy makers have pledged to buy 60 billion of covered bonds, low-risk mortgage backed securities and public sector loans. The Central Bank will unveil details of the asset-purchase plan along with the latest economic forecasts when council members meet on Thursday.
Data Released 3rd June
U.K 00:01 Consumer Confidence Index (May)
EU 08:58 Markit Services PMI (May)
- Composite PMI
U.K 09:28 CIPS Services PMI (May)
EU 10:00 Gross Domestic Product (Q1 Details)
EU 10:00 Producer Price Index (April)
U.S 13:15 ADP Employment (May)
U.S 15:00 Factory Orders (April)
U.S 15:00 ISM Non-Manufacturing PMI (May)
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