Foreign Exchange: British Pound Hits New Low Against The Euro

The British Pound touched a new five month low against the euro yesterday as it struggles against economic and market sentiment issues.

As the month and quarter end hit so did the pound hit a new 5 month low on the foreign exchange markets. It is suffering on economic issues around the budget deficit and austerity measures introduced to address them.

It is also struggling with sentiment issues with perception that the Bank of England is falling ‘behind the curve’ in its response to persistently high inflation levels in comparison with other central bank authorities

UK data out yesterday showed UK consumer confidence stayed at low levels in March amid worries over economic conditions.

GfK NOP’s managing director of social research Nick Moon said “Consumer confidence has stagnated at depths seldom seen outside of actual recession. The last time it was this consistently low was two years ago, and before then in autumn 1990″.

Retailers are reporting tough conditions on the high street – Oddbins went into receivership this week, Mothercare today said margins were lower than expected and fashion and home furnishings group Laura Ashley said trading has worsened since February.

Whilst Nationwide reported that UK house prices rose marginally in March, up 0.5% for the month Robert Gardner, Nationwide’s chief economist, said “The outlook remains uncertain, but all things considered, this is unlikely to mark the beginning of a strong upturn in prices,”

Evidence of consumers struggling to save money is being seen by results in such as the supermarkets, with shoppers heading for discount supermarkets and making increased use of BOGOF deals and other special offers. Sainsbury’s has been hit particularly hard with their market growth slowing.

Further afield, despite poor data out of Ireland and Portugal, the euro made strong gains across the board after a report showed higher than expected euro zone inflation increased the likelihood that the European Central Bank (ECB) will boost interest rates as early as 7 April.

The Irish central bank reported in the long awaited results to the Irish banking system ‘stress tests’ that the Irish banks need another €24 billion to secure themselves against any further deterioration in the economy. The figure is in line with expectations.

S&P also downgraded Portugal to one notch above junk to BBB -this week raising the heat on Lisbon which is widely expected to follow Greece and Ireland into an EU-IMF bail-out.

The second quarter of 2011 starts with hopes for global economic expansion intact after a survey of China’s manufacturing base showed the sector’s output accelerating, suggesting Beijing’s monetary efforts to cool inflation were not damaging activity and that foreign demand remains firm.

The key data today is the US non-farm payrolls data. Analysts are expecting to see further evidence that the labour market in the world’s biggest economy continues to pick up steam with a forecast of a net 190,000 jobs created in March and the unemployment rate remains at 8.9%.

Overnight, Minneapolis Fed president Narayana Kocherlakota said it was “certainly possible” US Fed rates could rise by as much as 0.5% by the end of 2011.

Market Analysis provided with input from TorFX

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