The Pound declined heavily against the Euro and the Dollar as risk aversion rose yesterday. Sterling suffers as Britain battles record deficits and investors fearing a repeat of Greece’s crisis. Markets also continued to elaborate on recent BoE talk that more QE is still possible in case the economic fails to recover at a strong enough pace. The UK data yesterday were mixed, with the Q4 business investment coming out much weaker than expected, but the CBI distributive trades showing quite a remarkable rebound. Nevertheless, as market sentiment obviously turned sterling negative, the UK currency reacted only to the negative news headlines. The positive side of the story was ignored. Also to note the Pound is under pressure that the 09:30 GBP figure out this morning will be poor which will reiterate that the UK recovery is still in trouble .
The Dollar made gains against the Euro and the Dollar as investor’s retreated back to the Dollar due to its safe haven status. There was however poor economic data out yesterday which was swept under the carpet including Initial jobless claims data grew to 496,000 from a previous 473,000, currently at the highest level since November. Furthermore, yesterday’s housing data showed disappointing figures, with investor’s mortgage application falling 8.5 percent from a previous 2.1 percent, and new homes sales dropping 11.2 percent from an expected 3.5 percent increase.
During yesterday’s semi-annual testimony, Chairman Bernanke reiterated the need for benchmark rates to remain low for an extended period of time; however, he remained bullish towards the greenback, commenting that normalization in monetary policy will eventually support the US dollar.
The Euro made gains against the Pound while declining against the Dollar as Greek’s sovereign debt crisis continues. The Greek government faced opposition from labour unions yesterday when protests broke out in central Athens to threaten government’s decision to cut spending. Furthermore, Greek bonds declined as investors lost confidence in the government’s ability to cut tight budget gap below the EU’s 3 percent limit in 2012. Should the nation fail to fill much of its budget gaps this year, the euro will considerably weaken.
Data Released 26th February 2010
UK: 09:30 GDP (2nd est)
EU: 10:00 HICP
US: 13:30 Core PCE Price Index (P)
US: 13:30 GDP Deflator (P)
US: 14:45 Chicago PMI
US: 14:45 University of Mich Sent. (F)
US: 15:00 Existing home sales