Foreign Exchange: Pound Continues To Rise Against The Euro

The Pound continued to rise against the Euro yesterday, hitting a high of 1.2176 in early trading. It was also up 0.3% against the US Dollar by the close of trading last night.

The Pound continued its upward momentum against the Euro even though Prime Minister David Cameron seems to be preparing the UK for the deepest public spending cuts since Margaret Thatcher’s reign.

The Prime Minister is seeking public backing for cuts that will be the steepest since the 1980s, as we move towards the June 22nd budget in which the Chancellor is set to unveil reductions needed to reduce the UK deficit. This has expanded to 11.1% of GDP, the most among the Group of Seven nations.

The fact that the Pound has continued gaining versus the Euro currency just shows the weakness in the single currency.

European stocks have fallen again this morning, while the FTSE 100 Index has also retreated, amid escalating concern that the sovereign debt crisis engulfing much of Europe will spread and slow the global economic recovery.

Asian stocks also slumped and US futures fluctuated, after the non-farm payrolls data prompted speculation that the US economy may be heading towards a slowdown.

The Pound was up 0.3% against the Dollar by the close of forex trading last night at $1.4490.

Neil Mellor, a currency strategist at Bank of New York Mellon Corp, said that gains by the Pound will prove to be a “temporary correction” and the UK currency is still “lower than where we were through the course of last week.”

Analysts at Bank of Tokyo-Mitsubishi UFJ Ltd have advised investors to buy currencies considered to be the safest because the global recovery will slow as governments focus on budget cuts. Lee Hardman, a foreign exchange strategist at the bank said that “escalating global sovereign debt concerns are prompting governments globally to re-focus attention on fiscal consolidation, diverting attention away from supporting global growth. We continue to prefer remaining defensively positioned safe haven currencies such as the Yen, Dollar, and Swiss Franc.”

EUR/USD

The Euro fell to a four-year low against the U.S Dollar yesterday, as the slump in global stock markets and the sovereign debt crisis in Europe raised concern about the sustainability of the global economic recovery.

The Euro also fell to an 8-year low against the Japanese Yen, as investors flocked to the relative security of lower-yielding assets.

The Euro declined even as a report from Germany showed that factory orders unexpectedly increased for a second month in April, driven largely by a weaker Euro that has fueled demand for exports.

John Doyle, a strategist at currency-trading firm Tempus Consulting Inc, said that “the data was not enough to prop up the euro. Until the European debt crisis cools somewhat, the data will continue to be overlooked. Every time you see stocks fall, people are shedding riskier assets.”

Market Analysis by Adam Solomon,Torfx

Any opinions expressed in this document are aimed at helping readers understand market conditions and developing trends. Readers are wholly responsible for their own trading decisions.