Foreign Exchange: Pound Falls Against US Dollar

Published: 7 March 2012 By Peter Thompson Leave a Comment

The Pound fell through 1.58 against the US Dollar yesterday and tested resistance around 1.20 against the Euro.

Foreign Exchange

The Pound fell on the foreign exchange markets as a report showed that UK house prices declined for a third month in four in February. Retail sales declined too as the uncertainty surrounding the economic outlook curtailed consumer spending.

Whilst these negative factors hit, with recent reports on PMI manufacturing and service sector growth pointing to a recovery in the economy during the first quarter, that may yet be enough to ward off the threat of a contraction and a technical recession, which would tend to support Sterling.

The FTSE 100 Index suffered its biggest three-day drop since January, as investors await a deal for Greece.

The Bank of England meeting on Thursday is likely to be a “no change” on interest rates again. The latest forecasts show that policy makers won’t raise borrowing costs until the fourth quarter of 2013.

Having increased quantitative easing in February it is most likely that the BoE will maintain bond purchases at the current level.

The Pound has remained close to the 1.20 level versus the Euro, as data in Europe showed the economy contracted during the fourth quarter.

The revised estimate of Euro-zone GDP showed a decline of 0.3% in the final three months of 2011, adding to speculation of a recession engulfing the Euro-zone.

EUR/USD

The Euro encountered strong resistance around 1.32 against the US Dollar yesterday. It was subjected to fresh selling pressure, as the market moved towards 1.31 by the close of trading last night.

The decline in risk appetite was the primary driver of Dollar strength, as investors returned to the relative security of safe haven assets following the sharpest decline in stocks this year.

Equally the Euro was weakened with further uncertainties surrounding the Greek private-sector debt restructuring.

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Any analysis and/or forecasts are provided to help understand market conditions and developing trends. Readers are wholly responsible for their own trading decisions.

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