Sterling Under Pressure on Dovish Talk From BOE

Sterling is being weighed by some very dovish comments from the Bank of England on Wednesday.

Following the publication of the central bank’s Quarterly Inflation Report on Wednesday, BOE Governor Mervyn King told reporters in London that now would not be appropriate to raise interest rates, but that further asset purchases have not been ruled out.

He added that he stands behind the new government’s initiatives to reduce the deficit quickly, and that the euro zone “clearly” needs some kind of fiscal union.

The comments add to the view that rates could remain lower for a longer period of time, an unexpected development for the FX markets which thought that the central bank could be concerned about recent inflation rates.

Meanwhile, the Quarter Inflation Report said that nation’s downside growth risks have increased somewhat, but that the nation’s budget cuts could need to be more demanding than previously thought.

The report also forecasts CPI growth of 0.6% by the end of 1010, and 1.7% by the end of 2011.

The threat of weaker than expected growth, means that interest rates could remain lower for a longer period than expected, a development which is hurting the currency on Thursday.

The dovish talk was also strong enough for markets to ignore a better than expected jobs report on Thursday.

According to the office for National Statistics, UK jobless claims declined 27.1k in April, faster than calls for a 20.0k pullback and adding to a 32.7k decline in March. The claimant count rate fell to 4.7% despite expectations for no change to the prior 4.8% level.

Although the data are good for the pound sterling, the currency is being weighed upon by the threat of low interest rates for a longer period of time.

GBP/USD last traded lower by 19 pips at 1.4928 after trading between 1.4861 to 1.5045 today. Short term resistance lies at 1.5054, 1.5391 and then 1.5498 and 1.5575, with support at 1.4477, 1.4398 and 1.4111.

Euro Zone to Lend €1210 Billion to Greece

Greece continues to be the main headline in the foreign exchange complex on Monday after European leaders agreed to a €110 billion lending facility for the beleaguered nation over the weekend.

According to Eurogroup President Jean-Claude Juncker delivering the news, €80 billion in loans will come from the euro zone, with the IMF fronting the remaining €30 billion.

The package also includes a €10 billion provision which will go to creating a Greek, bank-stability fund. According to EU Monetary & Economics Commissioner Olli Rehn the interest rate on the Greek lending facility if around 5.0%, and the funds will begin being disseminated on May 19, the next Greek government bond redemption.

The big question here is whether or not the measures will be sufficient to calm the financial markets, and convince traders that Greece will not default on its debt, and that Spain and Portugal will not be dragged down.

While earlier indications suggested that the markets were happy with the news (the euro opened higher at the beginning of the Asia-Pacific session) EUR/USD has since declined as the markets have opened.

One may point out that early reports last week had €120 billion euro allocated to Greece.

Also, German policymakers have suggested the agreement will be a tough sell for the voters, which will vote in regional elections over the coming days.

The bottom line is that if Germany wavers, the single currency will remain weak, or weaken further.

EUR/USD last traded lower by 26 pips at 1.3268 after trading between 1.3262 to 1.3361 so far today. Short term support lies at 1.3225 and then 1.3115 and then 1.2965 from April 28, 2009, while resistance is at 1.3426 followed by 1.3521 and 1.3818.

Euro Zone to Lend €110 Billion to Greece

Greece continues to be the main headline in the foreign exchange complex on Monday after European leaders agreed to a €110 billion lending facility for the beleaguered nation over the weekend.

According to Eurogroup President Jean-Claude Juncker delivering the news, €80 billion in loans will come from the euro zone, with the IMF fronting the remaining €30 billion.

The package also includes a €10 billion provision which will go to creating a Greek, bank-stability fund. According to EU Monetary & Economics Commissioner Olli Rehn the interest rate on the Greek lending facility if around 5.0%, and the funds will begin being disseminated on May 19, the next Greek government bond redemption.

The big question here is whether or not the measures will be sufficient to calm the financial markets, and convince traders that Greece will not default on its debt, and that Spain and Portugal will not be dragged down.

While earlier indications suggested that the markets were happy with the news (the euro opened higher at the beginning of the Asia-Pacific session) EUR/USD has since declined as the markets have opened.

One may point out that early reports last week had €120 billion euro allocated to Greece.

Also, German policymakers have suggested the agreement will be a tough sell for the voters, which will vote in regional elections over the coming days.

The bottom line is that if Germany wavers, the single currency will remain weak, or weaken further.

EUR/USD last traded lower by 26 pips at 1.3268 after trading between 1.3262 to 1.3361 so far today. Short term support lies at 1.3225 and then 1.3115 and then 1.2965 from April 28, 2009, while resistance is at 1.3426 followed by 1.3521 and 1.3818.

Euro Under Pressure As German Support For Greece Not Certain

The euro is under pressure again on Tuesday as a German commitment to coming to the rescue of Greece is not yet certain.

Earlier this morning, German Chancellor Angela Merkel told an audience in Soest, Germany, that the nation will not release funds to Greece until it is presented with a plan to help the beleaguered nation.

The comments come ahead of a state election in Germany on May 6, and voter opposition to the Greek bailout plan is rampant.

Meanwhile, in an interview with Bloomberg News, European Central Bank Vice President Lucas Papademos said that the Greek fiscal package being prepared for May will contain measures to contain the risk that the crisis will spread to the rest of the euro zone.

Also, speaking before an audience in Athens, George Provopoulos of the Greek central bank said that Greece needs to surprise the markets by undertaking deeper than expected budget cuts so as to reinforce its commitment to reducing its debt.

Although the comments have no bearing on FX, the central banker does make an interesting point. If Greece manages to outdo expectations for its debt reduction, it would indeed bring down yields on government bonds, and help support the euro.

Meanwhile, Papademos’ comments should help alleviate some of the tensions on the euro if he proves to be correct. Unfortunately, faith in the European leadership is sparse these days, and until the region presents a solid plan to back Greece, the currency is likely to continue weakening.

As a consequence, risk aversion is high on Tuesday, making for a weaker euro.

EUR/USD last traded down 75 pips at 1.3308 after trading between 1.3299 to 1.3416 so far today. Support lies down at 1.3202, 1.2965 from April 28, 2009, and then 1.2886 from six sessions before that. Meanwhile resistance is at 1.3523, 1.3679 and then 1.3692.

Sterling Under Pressure Despite Upbeat Deficit Data

The pound sterling is under some pressure on Thursday despite a smaller than expected increase in the budget deficit.

Earlier this morning, the Office for National Statistics reported that the UK’s public finances rose to +£25.8 billion in March, short of calls for an increase to +£31.3 billion from the prior month’s revised +£8.0 billion.

The results translate into a £152.8 billion deficit, the largest since World War II.

Public sector net borrowing advanced to +£23.5 billion in March from a revised +£9.7 billion, just short of calls for a +£24.0 billion level.

Simultaneously, the ONS also reported that annual retail sales excluding fuel were in line in March, rising 4.0% compared to the revised 5.0% increase the month prior. Headline sales advanced 2.2%, just short of calls for a 2.3% gain and prior 3.2% increase.

The data failed to have much of an impact on FX, which moved instead on a smaller than expected budget deficit reported simultaneously.

On the news, GBP/USD popped up 29 pips, but continued to head south, last trading lower by 19 pips at 1.5392 after trading in a range between 1.5376 to 1.5473 today.

Short term resistance lies at 1.5507, 1.5524, and the nothing until 1.5575. Support is found at 1.5290, 1.5192, 1.5130 and 1.4799.

The euro’s demise on Thursday appears to be weighing on the currency.

German Media Reports That Greece Will Borrow €90 Billion Over Three Years

The euro continues to be under pressure on Wednesday after more downbeat news on the Greek debt crisis.

Earlier this morning the Handlesblatt news agency cited unnamed sources in the EU as saying that the Greek lending facility could total €90 billion over three years.

Meanwhile, an unnamed German government source said that the final bill could be “twice that much”.

An EU spokesperson vehemently denied the claims, saying the Handlesblatt article is based on “speculation”.

Adding to concerns were comments from the Fitch ratings agency saying that it won’t be long before Greece reaches out for aid from its friends.

In an interview with Bloomberg News, Fitch Ratings Director Christopher Pryce says Greece will likely be forced to activate its emergency lending facility with the EU and IMF within the next two weeks. He also pointed out that Greece needs to raise €11.6 billion by the end of May.

Portugal was also weighing on the euro’s gains on Wednesday after the EU said the nation may not meet 2010 budget goals.

Earlier this morning EU Monetary and Economics Commissioner Olli Rehn told audience in Brussels that Portugal will likely need to adopt additional measures in 2010 to meet its budget obligations, and that the economic forecasts which the nation had incorporated were too optimistic.

Rehn also said that financial aid needs to become “unattractive”, but declined to comment on how this could be done.

Both comments are weighing on the euro, which should be gaining on the back of declining risk aversion on the USD.

EUR/USD last traded lower by 3 pips at 1.3610 after trading between 1.3600 to 1.3665 so far today. Short term support lies at 1.3283, 1.3268 and then 1.3247 from May 6, 2009, followed by 1.3213 from two days before that, while resistance is at 1.3692, 1.3818 from March 17 followed by 1.3839 from February 9.

Euro Bounces on Details of Greek Lending Facility

The euro is finding some support on Monday after European leaders reached an agreement over the size of the Greek emergency lending facility.

Eurogroup President Jean-Claude Juncker told reporters in Brussels on Sunday that euro zone finance ministers have agreed to provide Greece with up to €30 billion this year in bilateral standby loans if necessary, adding that the loans contain “no element of subsidy”.

Meanwhile, EU Economic Commissioner Olli Rehn said that the Greek loans would be fixed according to an IMF formula and would be at a rate of approximately 5%. He added that the program will be activated “when needed”, and that the loans will be covered by the EU and IMF at a 2:1 ratio.

Reacting to the news on Monday, ECB President Jean-Claude Trichet said that decisions being reached over the Greek emergency lending facility are “positive”, and that he expects all parties involved to keep up their responsibilities, including Greece, on reducing its budget deficit.

Meanwhile, EU spokesperson Amadeu Altafaj affirmed that the interest rates set on a lending facility for Greece will be set independently by the EU and IMF, and may differ between both organizations. Nevertheless, the decision to active the lending facility will have to be made by the Eurogroup acting unanimously.

The comments continue to add credence to some of the gains in the euro seen this morning, however they are not surprising given the need for an appearance of confidence in this situation.

The key here could be the 5.0% interest rate being discussed, since up until recently, the markets were offering a rate of around 7.0% on Greece bonds. This could be viewed as a subsidy by some euro zone nation, a move which would constitute a violation of EU law.

Nevertheless, EUR/USD last traded higher by 85 pips at 1.3585 after trading in a range of 1.3492 to 1.3692 so far today.

Short term support lies at 1.3283, 1.3268 and then 1.3247 from May 6, 2009, followed by 1.3213 from two days before that, while resistance is at 1.3818 from March 17 followed by 1.3839 from February 9.

Euro Moves Higher After Strong Economic Data

The euro is making some head way on the back declining risk aversion, bolstered by an upbeat employment report out of Germany, and strong euro zone CPI.

According to local authorities, German unemployment declined by 31k jobs in March, against expectations for a 7k increase and the deeper than the prior month’s 1k shortfall. The unemployment rate fell to 8.0% despite calls for no change to the unrevised 8.2% level, and the revised 8.1% rate from February.

Adding to the euro’s gains on Wednesday was a stronger than expected inflation report out of the euro zone earlier this morning.

According to Eurostat, the euro zone CPI estimate suggested a 1.5% annual inflation rate for March compared to calls for a 1.1% level and the prior month’s 0.9% rate.

The results increase the probability of an interest rate hike from the European Central Bank, a development which is positive for the European currency.

Also adding to the euro’s gains were comments from European Central Bank President Jean-Claude Trichet telling reporters in Stockholm that he expects Greek bond yields to decline, as market participants take into account the country’s debt reduction efforts. He added that he welcomes the expertise of the IMF in helping Greece tackle its budget problems.

The comments are good for the euro, in that if Trichet is right, the currency stands to regain some of its losses as bond yields increase in the euro zone, making investments in the region more attractive. Stay tuned.

EUR/USD last traded higher by 72 pips at 1.3485 after trading between 1.3385 to 1.3489 so far today. Short term support lies at 1.3268 and then 1.3247 from May 6, 2009, followed by 1.3213 from two days before that, while resistance is at 1.3569 followed by 1.3818.

Euro Claws Back Losses After ECB Agrees to Accept Greek Bonds

The euro is clawing back the day’s losses ahead of a critical European Union Summit in Brussels on Thursday, and is now in positive territory against the USD after the ECB offered an olive-branch to Greece.

Earlier this morning, ECB President Jean-Claude Trichet announced that the central bank will make loans against collateral graded as low as BBB-, but that the amount of loans obtained will be less that the higher AAA graded paper.

He added that interest rates remain “appropriate”.

Meanwhile, ahead of the EU summit in Brussels, German officials continued to reaffirm that aid to Greece must only come once the country fails to raise capital from the private sector.

Earlier this morning, EU Monetary and Economics Commissioner Olli Rehn told parliament that the EU Summit comes at a critical time for the euro zone, and that the monetary union must be defended. Regardless, all eyes and ears will be on the EU Summit, where a formal stance on the issue could be decided.

Speaking to reporters ahead of the start of the meetings Prime Minister George Papandreou is seeking support from the euro zone nations, so that the nation can raise the necessary capital to tackle its budget problems.

Also speaking at a press conference in Amsterdam earlier this morning, the central banker said a package led by the International Monetary Fund, and backed by member euro zone nations would be idea.

The comments go against the stance of European Central Bank Vice-President Jean-Claude Trichet, who has been pushing for a purely European solution, so as not to damage the credibility of the European Monetary Union.

In the overnight, and ahead of the EU summit in Brussels on Thursday, the euro declined to $1.3284USD, its worst level versus the greenback since May 7, 2009.

Nevertheless, with the ECB move resulting in Greek government bonds becoming less unattractive to investors, the euro has managed to recover, with EUR/USD last trader higher by 51 pips at 1.3366 after trading between 1.3284 and 1.3371 so far today.

Short term support lies at 1.3247 from May 6, 2009, and then 1.3213 from two days before that, while resistance is at 1.3569 followed by 1.3818.

Going forward, talk from the summit, is likely to be a hot topic for euro trader over the next several days. If the euro zone doesn’t come to the aid of Greece, expect the currency to decline further.

Euro Under Pressure As EU Summit Looms

The euro is under additional pressure on Monday with focus lying on the upcoming EU summit this week, where the fate of a European-led aid facility to Greece remains increasingly uncertain.

According to Deutchlandfunk over the weekend, German Chancellor Angela Merkel said she has made no decision on whether to support EU aid or to back an IMF solution for Greece.

The Chancellor warned of raising “false expectations” for a Greek solution at the March 25-26 EU Summit, pointing out that the issue isn’t on the agenda.

Reacting to the comments this morning, European Commission remains hopeful that an aid facility for Greece can be set up despite German opposition.

According to a statement released by the office of President Jose Manuel Barroso this morning, the President is “not disappointed” by comments made by German Chancellor Angela Merkel seeming to back away from aid to Greece over the weekend. Instead, the President says he remains hopeful that a solution can be agreed to in the coming days.

The EU summit is seen by traders as the key event where the fate of Greece will be decided. If an agreement to set up a facility is struck, expect the euro to regain some of its recent losses. On the other hand, failure for policymakers to reach an agreement could weaken the euro further.

The USD is broadly stronger on the back of the rising risk aversion, with Euro/USD down 0.16 cents to 1.3514, USD/CAD up 0.29 cents to 1.0202, USD/Yen up 0.04 points to 90.58, GBP/USD down 0.27 cents to 1.4986, and AUD/USD down 0.43 cents to 0.9111.

EUR/USD has traded in a range of 1.3498 to 1.3547 so far today. Short term support lies at 1.3500 and 1.3442. Resistance comes in at 1.3547 and 1.3586.

Euro Moves Higher As Finance Ministers Agree to Emergency Lending Facility

The euro has moved higher on Tuesday on the back of the completion of a broad framework for an emergency lending facility to euro zone nations facing budget problems.

In a statement released this morning, euro zone finance ministers were said to have reached an agreement over the “the technical modalities enabling a decision on coordinated action and which could be activated swiftly in the case of need … The objective would not be to provide financing at average Euro-zone interest rates, but to safeguard financial stability in the EUR area as a whole.”

After the meeting, Spanish Finance Minister Elena Salgado said that the time for nations to prepare their exit strategies is now, and that ministers had also agreed to budget guidelines for 2011. She made no mention of Spain’s potential difficulty I tackling its budget problems. All in all, the comments are neutral for FX.

According to Monetary and Economics Commissioner Olli Rehn, the EU’s economic recovery remains fragile, but should be self sustained by 2011.

Meanwhile, currency markets broadly ignored the days’ economic data. The German ZEW economic optimism index fell to 44.5 in March, better than calls for a decline to 43.5 from 45.1 the month prior. The current conditions index rose to -51.9, just further than calls for an increase to -52.0 from -54.9 the month prior.

Although technically a small positive for the currency, EUR/USD only experienced a modest pop.

Also, euro zone CPI rose 0.3% month-over-month in February, in line with calls and partially offsetting a 0.8% decline the month prior. Annual production was up 0.9%m in line with forecasts and priors.

Although the data were in line, they are also a confirmation of the CPI picture in the euro zone, with preliminary estimates already having been released.

On a side note, core CPI fell to a 0.8% annual growth rate compared to the prior 0.9% gain, its slowest pace on record.

Although the ECB cares more about headline CPI than core CPI, it suggests that rates in the EU could remain unchanged for some time, a development which would weigh on the currency.

The combined news has helped the euro sustain a modest rally against the USD, with EUR/USD higher by 49 pips at 1.3727. The pair has traded in a range of 1.3657 to 1.3704 so far today. Short term support lies at 1.3537 and 1.3531, with resistance at 1.3839 and then 1.4026.

Sterling Under Pressure On Warnings of Negative Quarter

Sterling is under sharp pressure on Monday after a BOE Board member warned of a possible slide in GDP.

In an interview with Western Morning News over the weekend, Bank of England Monetary Policy Board Member, Kate Barker said UK economic growth may contract once more, but will likely not fall back into recession. She explained that bad weather and an increase in the VAT are likely to hurt some of the increases in retail sales in the UK.

The comments were sour enough to overshadow some upbeat talk from a Moody’s analyst earlier this morning. In an interview with Reuters, Moody’s senior VP Kristin Lindow said that a hung parliament in the UK would likely take debt reduction measures, leaving the UK’s AAA rating intact, and that the UK remains a long way off from a change in outlook.

Indeed, much of the recent weakness in the pound has been attributed to the possibility that a minority government in the UK will not be able to achieve the necessary debt-reduction measures needed to maintain a AAA rating.

Nevertheless, focus in FX this morning continued to be on the dire situation in the UK, leaving GBP/USD lower by 146 pips at 1.5058 this morning after the pair traded in a range between 1.5021 and 1.5207 so far today. Short term resistance lies at 1.5575 with support at 1.4873 and 1.4784.

Mr. Papandreou Goes to Berlin

In Europe, all eyes are ears are on a visit from Greek Prime Minister George Papandreou to Berlin, where the lawmaker will seek the support of German Chancellor Angela Merkel.

Earlier this morning, in an interview with Frankfurter Allgemeine Zeitung, Papandreou said believes that if Berlin and the rest of the European Union agree to back Greece’s debt reduction program, it will help the nation raise the needed capital to finance its spending.

“We have not asked German taxpayers to pay for our pensions and holidays,” said the lawmaker. “That there is European support so that we can borrow money under better conditions. That is all we need."

Meanwhile Merkel is facing political pressure about backing Greece financially, a development which has put additional weight on the euro in recent days.

Elsewhere, the verbal support for Greece was strong with European Central Banker Mario Draghi telling reporters in Rome that the success of yesterday’s €5.0 billion bond auction demonstrates that Greece has convinced Europe of its sincerity to reduce its deficit, and in an interview with Deutschlandradio, Eurogroup President Jean-Claude Juncker said he doesn’t anticipate that Greece will require outside funding to correct its deficit, but that the nation has the full support of the European Union.

However the picture is not yet rosy. Greece’s €5.0 billion ten-year note auction may have been successful on Thursday, but an upcoming wave of debt sales from other euro zone nations may hinder the country’s ability to roll finance the rest of its deficit, according to an article in the Wall Street Journal on Friday.

Indeed, Greece’s ten-year note auction on Thursday was well bid, with the country raising €5.0 billion in the face of €14.5 billion in bids.

Nevertheless, the entire euro zone is looking to raise over €1.0 trillion in debt this year, paling in comparison to the €54 billion Greece needs to borrow to finance this year’s maturing debt and interest payments in Greece alone.

If demand for Greek debt appears to waver, expect another leg down in the euro as the fragile confidence from the last couple days gets shattered.

EUR/USD last traded flat at 1.3581 ahead of the nonfarm payrolls report in the U.S. So far today the pair has traded in a range of 1.3569 to 1.3607. Short term support lies at 1.3436 and 1.3424, with resistance at 1.3736 and then 1.3788.

Greek Austerity Package to Be Unveiled Wednesday

In the absence of any major economic news for the region, euro traders continued to focus on developments in Greece for direction.

According to Dow Jones Newswires, an unnamed European official said that an announcement for Greece to receive an austerity package worth €4.0 billion will likely be announced on Wednesday. Another official told the news agency that Greece is planning to raise €3.0 to €5.0 billion through the sale of a new ten-year note.

Meanwhile this morning, an EU spokesperson said that today’s talks have focused on Greece’s efforts to correct its budget imbalances and did not include a bailout plan for the beleaguered nation.

The debate is expected to come to a head on Friday, when Greece Prime Minister George Papandreou visits German Chancellor Angela Merkel to persuade her that the nation is doing everything necessary to correct its budget problems.

A bailout package for Greece is widely unpopular among French and German voters, and Greece is looking repair its battered image.

Meanwhile on Tuesday morning, EUR/USD appears to have given up some of its losses, last trading higher by 5 pips at 1.3566. So far today, the pair has traded in a range of 1.3436 to 1.3577. Short term support lies at 1.3424, with resistance at 1.3683.

If Greece manages to persuade the markets that its debt reduction plans are credible, look for the euro to bounce.

Greece Remains the Focus on Monday’s Asia-Pacific Session

Greece continues to be all the talk during Monday’s Asia-Pacific session with rumours of a massive bailout package giving equities a bit of a boost.

According to German newspaper Der Spiegel on Sunday, the euro zone nations are considering a €20 to €25 billion aid package to Greece.

According to the article the share is calculated according to the proportion of capital which each European nation holds at the European Central Bank, said the magazine, citing talks held when the body first began considering aid for Greece.

Allegedly, German officials have declined to comment on the report.

Meanwhile, in an interview with Welt-am-Sonntag Greek Finance Minister George Papaconstantinou said the euro’s problems extend beyond Greece’s budget concerns with the financial markets are betting on another euro zone nation to experience similar problems, deepening the problems in the region.

Indeed speculation over the concerns in Greece have been responsible for the weakness we’ve seen in European bonds this week, and this sentiment has continued despite assurances from the European Community that Greece will not default on its debts. The current concern is that another euro zone nation will announce similar problems to Greece, a development which would likely weigh further on the euro even if much of it has been priced into the markets already. Should the euro zone successfully and credibly defend itself from this speculation down the road, expect the euro to rally.

Finally, speaking in an interview with BBC news, Greek Prime Minister George Papandreou said the nation does not want financial aid from the European Union, just time and political support.

As stated in the past, a bailout of Greece is not likely to be of much help to the euro whose credibility had already been damaged by the willingness of the euro zone nations to bailout the Greeks in the first place. That being said, if the euro zone can credibly convince the markets that no other country in the union will suffer the same fate as Greece, the euro should make a comeback.

EUR/USD last traded higher by 24 pips at 1.3637 after trading in a range of 1.3602 to 1.3648 so far today.
Short term support lies at 1.3444, followed by 1.3424 and 1.2886 with resistance at 1.3647, 1.3788, and 1.3801.

Poor Data and News Deepens Sterling’s Declines

Although all currencies have been under pressure after Thursday’s surprising 25 bps hike in the discount window to 0.75%, the pound sterling is taking is harder than others on the back of a poor retail sales report and more concerns over the country’s fiscal position.

UK retail sales excluding fuel fell 1.2% month-over-month in January despite calls for a smaller 0.5% pullback and the prior 0.5% gain, and annual sales rose 2.6%, beating forecasts for a 1.1% pickup, but slower than December’s 2.9% gain.

GBP/USD lost 37 pips on the announcement, although the losses were short lived, and were quickly recovered.

Meanwhile, after 20 influential economists attacked the UK government for failing to cut spending last week, 67 economists including two Nobel Prize winners have backed the Prime Minister, arguing that it is too early to withdraw stimulus.

In articles in the Financial Times, both Joseph Stiglitz and Robert Solow have argued that a move geared at reducing the UK’s budget deficit will stifle the embers of economic recovery in the island-nation, agreeing with the assessment from the Chancellor of the Exchequer, Alistair Darling.

The comments add to the woes of the pound sterling which has been under pressure in part because of its deteriorating budget position.

GBP/USD last traded lower by 132 pips at 1.5397, after trading in a range of 1.5357 to 1.5542 today. Short term resistance lies at 1.5816 with support at 1.5296.

EUR/GBP last traded higher by 651 pips at 0.87773 after trading between 0.87033 to 0.87913 today. Short term resistance lies at 0.87481 with support at 0.86580.

Sterling Under Pressure After Poor Data & Downbeat Comments From BOE Member

The pound sterling has been under pressure throughout the morning on Thursday after a poor public finances report and downbeat comments from a Bank of England Monetary Policy Board Member.

UK’s public finances fell £11.8 billion in January, less than calls for a £20.0 billion pullback and reversing a £16.3 billion gain in December.

Public sector net borrowing rose £4.3 billion despite forecasts for a £2.6 billion slide and prior £14.0 billion increase.

The news sparked a 47 pips sell off in GBP/USD to 1.5577.

Also weighing on the pound were comments from Bank of England Board Member Kate Barker in an interview Newsletter on Thursday morning, saying that the country’s economic recovery is “quite hesitant”, and that it is possible for the UK to experience another quarter of contraction.

The comments illustrate the difficulties which the country has been facing in recent months and are consequently adding to the woes of the British currency on Thursday.

The GBP/USD last traded lower by 73 pips at 1.5599 after trading in a range of 1.5575 to 1.5688 today. Short term resistance lies at 1.5816 with support at 1.5560.

Meanwhile, EUR/GBP is up 257 pips at 0.87073 after trading in a range of 0.86644 to 0.87170 today. Short term resistance lies at 0.87459 with support at 0.86580.

Sterling Takes Back Some Losses After Poor Employment Report and Dovish BOE Minutes

Sterling is recovering earlier losses after a dismal employment report and dovish minutes from the Bank of England sent the currency plummeting earlier on Wednesday morning.

UK jobless claims unexpectedly rose by 23.5k in December despite calls for a 10.0k decline and prior 9.6k pullback the month prior.

The claimant count rate was unchanged at 5.0%, as expected, as was the ILO unemployment rate at 7.8%.

Meanwhile minutes suggest that the BOE vote to leave monetary policy unchanged on Feb. 4 was unanimous, but that for some members, the decision was “finely balanced”.

Nevertheless most members agreed that the February data did not suggest that inflation would undershoot over the coming months, and consequently, that additional monetary stimulus was not necessary for the time being.

Already under pressure ahead of the releases, sterling declined an additional 24 pips on the news, touching off 1.5738 before declining global risk aversion helped recover to the current 1.5790 level.

So far today, the pair has traded in a range of 1.5738 to 1.5816. Short term resistance lies at 1.5892 with support at 1.5560.

Meanwhile, the reports sent EUR/GBP higher by 134 pips to 0.87411 before quickly retracing lower to 0.86993.

So far today, EUR/GBP has traded in a range of 0.8704 to 0.87411 today. Short term resistance lies at 0.88416 with support at 0.86580.

Sterling Pops Despite In Line CPI

Sterling popped modestly higher on the back of some relatively in line inflation data earlier this morning, which prompted verbal action from the head of the Bank of England, as well as the Chancellor of the Exchequer.

According to the ONS, UK CPI fell 0.2% month-over-month in January, further than calls for a 0.1% decline and reversing a 0.6% contraction in December. Annual CPI was up 3.5%, in line with expectations and faster than the prior 2.9% pickup.

As usual, the results have prompted the central bank government to write a letter to the Chancellor of the Exchequer explaining why inflation was above the 3.0% threshold, however, this was also expected by the markets.

In the letter, BOE Governor Mervyn King said the jump in inflation is expected to disappear as slack in the economy brings down prices.

The comments are in line with warnings from the Bank of England which predicted a temporary spike in inflation in the region.

Responding King's letter, UK Chancellor Alistair Darling said he agrees that inflation in the UK will decline, and that the central bank's economic outlook remains consistent with that of the Federal government.

Although in theory the data was priced into the markets, GBP/USD nevertheless added 18 pips to 1.5707 before retracing the moves.

So far today, the pair had traded in a range of 1.5654 to 1.5730. Short term resistance lies at 1.5765 with support at 1.5560. With this morning's CPI report in line, the gains in the pound are also being driven by a decline in risk aversion worldwide.

Sterling Under Pressure As Debt Concerns Grow

Sterling Under Pressure As Debt Concerns Grow

The pound sterling is under some pressure at the start of the week, following concerns from some key economists over the government's debt reduction programs, along with another ripple of concerns from Dubai World.


In a letter addressed to the Sunday Times on Monday, 20 influential UK economists including some of the BOE's Monetary Policy Board said the UK's debt reduction program lacks urgency and that the country should attempt to eliminate the country's deficit within five years.

However, government officials continue to press the fact that the time is not yet right to withdraw some of the simulative policies adopted to fight the financial crisis.

Responding to the letter in an interview with BBC Radio 4, UK Chancellor of the Exchequer Alistair Darling says he disagrees with the needs to cut the deficit more quickly for fear of snuffing out the beginnings of an economic recovery in the region.

The implications for FX are mixed. Essentially, faster budget cuts in the UK would in theory help the currency's credibility and strengthen the pound, particularly in the short term.

That being said, if Darling is correct that cutting the deficit could send the UK into another recession, the longer term prospects on the pound could be weakened.

Also weighing on the pound is a report that investors of Dubai World could face losses after all. Earlier on Monday, sources told Dow Jones Newswires that Dubai is looking at a plan to repay lenders 60% of investments over the next seven years.

Although the government has publicly denied the report, the comments are said to be weighing on sterling given the exposure of the British Banks to the Middle East.

Nevertheless, the moves have not been very drastic, and the pound was only lower by 38 pips at 1.5662 shortly after the North American markets would have opened if not for public holidays in the U.S. and Canada.

So far, the pair has traded in a range of 1.5613 to 1.5692. Short term resistance lies at 1.5765 with support at 1.5613.

Meanwhile, EUR/GBP is down 40 pips at 0.86761 after trading in a range of 0.86707 to 0.87029 today. Short term resistance lies at 0.88416 with support at 0.86580.