The Pound Sterling
The pound fell heavily yesterday across the board as a spike in oil prices drove investors into ‘safer’ currencies and sparked concerns about the impact on an already fragile UK economy.
Indeed sterling hit a three week low versus the euro and it may struggle to see any further gains in the short term as the potential interest hike that the Bank of England have been discussing has already been largely factored into the market.
Versus the dollar sterling remained steady, although it did lose 0.6% on the day, retreating fro Wednesday’s high of $1.6275. Stop losses are now in focus with some traders warning that a break below $1.61 could signal a drop down below the $1.6070 level.
This morning sees the release of revised Q4 GDP data, which will be important for the GDP. No upward revisions to the initial estimate of a contraction on 0.5% are anticipated, with the data likely to remind markets that the UK economy still faces many challenges.
The Euro was one of the best performing currencies on the markets yesterday as it gained from both risk sentiment and positive fundamentals, with a hefty wedge of rumour doing its best to bolster the so far this month shaky looking single currency.
Despite its ongoing debt crisis, which is likely to come back into focus again at some point, the euro is quickly emerging as a safe have for investors along side the US Dollar and Swiss Franc during time of risk aversion.
With the US Dollar likely to suffer from disruptions in Libya having an affect on other oil producers, the euro seemed a good option for harbouring money, which assisted the euro in making 3 week highs against both the pound and near one month highs against the dollar.
The Euro’s gains versus the dollar hit a session high in mid-morning trading yesterday on expectations that interest rates in the single currency zone will rise earlier than those in the US.
European Central Bank official Axel Weber said there’s only one way for the interest rates to go and that’s north.
The ECB meets next week and while no official rate changes are expected, the markets are starting to believe it will at least sound a more cautious tone with regard to inflation. Markets will be watching this morning’s release of German provisional CPI data for February, as well as January’s euro zone M3 report for any clues.