Currency News

Currency News Update

UK MARKET – GBPEUR/GBPUSD

Nationwide Building Society showed that UK house prices climbed to the highest level in almost two years where the Pound rallied back towards the 1.20 level against the Euro yesterday, approaching the highest rates in 18 months. Sterling also gained to within a cent of the three week high against the U.S Dollar with the economic recovery is gathering momentum in the USA.

The property market is starting to recover after home values dropped by about a fifth at the trough of the recession. Although record low interest rates and the economy’s return to growth has helped bolster demand, banks in April still approved less than half the number of home loans than at the peak of the boom in 2007. The rise in UK house prices may be attributed to the fundamental lack of properties for sale rather than a sustained recovery in the sector. The average cost of a home in Britain increased 0.5% from April to £169,162, the highest level since July 2008.

The Pound briefly rose above $1.47 against the U.S Dollar yesterday, as UK stocks rallied for the first time in three days. Reports that UK insurer Prudential Plc had failed in their protracted $35.5 billion acquistion of AIG Inc’s Asian division is also supportive to Sterling, as the company will no longer be selling sterling to fund the purchase.

The FTSE 100 Index climbed for the first time in three days, amid speculation that the U.S economic recovery is spreading, while investors also speculated that shares in BP Plc had fallen too far. BP gained for the first time in four days, as it struggled with efforts to stop the oil spill off the Gulf of Mexico.

The leak has wiped out a third off the value of BP stock since April 20th and the company is bracing itself for a huge clean up bill from the U.S government. The FTSE 100 rose 1.2% yesterday and the Pound subsequently strengthened against the Dollar, as the correlation between stock market sentiment and Sterling’s performance against the U.S currency remains intact.
EURO MARKET – EUR/USD

The Euro was unable to hold above $1.23 against the Dollar yesterday and declined steadily, as the single currency remains mired in the sovereign debt crisis that has engulfed a number of peripheral nations in the Euro-zone. There were further concerns within European bond markets during the day, with the spread on Spanish bond markets rising to a record high.

Growth in European manufacturing and services industries slowed in May, as a composite index fell below initial expectations. The outlook for the region’s economy has turned bleak in recent months, as the threat of contagion from Greece’s fiscal crisis has pushed the Euro to the lowest level in four years against the U.S currency.

Takatoshi Kato, a former Japanese top currency official, said that the Euro’s current level is in line with the region’s economic condition and European sovereign risk may have a limited impact on the global economy. There are also expectations that the European Central Bank will increase liquidity, as stresses in money markets continue.

The U.S economic data was broadly in line with initial expectations and failed to have a major impact. Initial jobless claims fell to 453,000 in the latest weekly data, while the ADP employment report also recorded 55,000 employment growth for May, following a revised 65,000 gain the previous month.

The ISM index for non-manufacturing was relatively unchanged in May but the employment component edged higher. The reports yesterday will provide an insight into the nonfarm payrolls numbers this afternoon, with investors speculating that the economy added more than double the amount of jobs in May

Tags:  Currency News, dollar, euro, euro zone, sterling