Euro Falls To Three And A Half Year Low Against The Pound

The euro has fallen in value against the UK pound and following weekend election

results in France and Greece, reducing the cost of buying property in the Eurozone for UK-based nationals.

The outcome of the elections has cast doubt on European austerity plans placing further pressure on the struggling single currency.

"There will be fresh doubts as to whether Greece can remain in the euro. The new political reality in Europe is that voters appear no longer willing to accept spending cuts, low growth and unemployment, said BBC Europe editor Gavin Hewitt.

UKForex Commentary:

Euro:

With the weekend French and Greek elections at the forefront of investors minds, it was never going to be a strong end to the week for the single currency and combined with widespread risk aversion after US Non-Farm Payrolls missed estimates the euro suffered sharp losses against the USD on Friday. Economic releases from the 17-nation currency union continued to print softly on the day as services sector PMIs from Italy and France came in below expectations, adding to the bearish sentiment surrounding the Eurozone economy. During afternoon trading rumours circulated that Spanish banks were in talks with the ECB regarding emergency funding which gave investors yet another reason to sell the common currency. Price action in the GBP/EUR cross was flat for most of Friday, but came to life at the end of trading as euro selling prevailed, sending the cross to a high just shy of 1.2350. Over the weekend the media focus was firmly on elections in Europe and as widely expected Socialist leader Francis Hollande was elected as the new president of France yesterday. Elsewhere, in Greece the two pro-bailout governing parties lost their parliamentary majorities in voting on Sunday, seemingly pushing the beleaguered nation into yet another phase of significant uncertainty, and in Germany Chancellor Angela Merkels party suffered their worst election in more than 50 years. This news saw the EUR open lower during Asian trading and subsequently EUR/USD fell to a 3-month low of 1.2955 and GBP/EUR traded to a high of 1.2440, the highest the pair has been since November 2008. It is a bank holiday in the UK today and subsequently we have no economic releases on the data docket. The prevailing political uncertainty in Europe is likely to be the focus for financial markets today and on that basis we could well see further losses for the EUR. GBP/EUR opens this morning at 1.2415.

United States Dollar:

The main event for investors on Friday was US Non-Farm Payrolls and the all-important jobs number from the world's biggest economy was unequivocally negative with only 115,000 workers added to payrolls in April, 45,000 less than most economists had forecast and the smallest gain in 6 months. The 0.1% fall in the US unemployment rate, to a three year low of 8.1%, was unable to be taken as a positive given that the decline in the rate was attributed to a shrinking workforce as many Americans gave up their job searching altogether. Predictably QE3 chatter started doing the rounds as the market digested the weak jobs number which was the third consecutive monthly decline in hiring growth from the US. The FX markets initial reaction was to sell the USD on the weaker than expected release, but as stocks, oil, and US 10-year yields tumbled on large scale risk aversion, the greenback caught its familiar safe haven bid and ended the day higher against most of its major counterparts, particularly high beta FX, including sterling which ended trading on Friday around 1.6142 from a high above 1.6200 posted a few hours before. The pound continued to struggle to replicate its recent run of form against the USD on Friday, hindered during early European trading by a report that showed that British house prices declined in April, erasing the gains from the last month. Despite GBP/USD posting a loss of about 0.5% last week, sterling was able to remain resilient against the greenback due to supportive cross flows, and Friday was no different as selling in EUR/GBP continued to buoy the UK currency across the board. A report released by a major bank on Friday discussed their view that the Bank of England may look to increase their asset purchase program by 25-50 billion when they meet this week and whilst this view isnt that held by the majority, it is certainly something to consider in light of the poor UK Q1 GDP number and some shaky PMI numbers released last week. Cable slumped alongside EUR/USD in overnight trading and opens this morning at 1.6140.

Aussie and Kiwi Dollars:

The AUD and NZD ended the week as the biggest losers in the G10 currency space as a poor Non-Farm Payrolls number from the US dampened demand for the higher yielding currencies as equities and commodities declined and the flight into USD denominated assets intensified. The NZD continued to suffer on the back of the higher than forecast unemployment rate that was seen earlier in the week and this prevailing weakness combined with broad USD strength pushed the NZD/USD pair to a low of 0.7935. GBP/NZD continued its ascent on Friday, trading to a high of 2.0369, posting a solid gain of about 500 points for the week. AUD/USD continued to get sold on the last trading day of the week with the bearish sentiment on the back of the greater than expected interest rate cut from the RBA still hanging over the antipodean currency, and this combined with the widespread risk aversion on the day sent AUD/USD to a low of 1.0178. This prevailing AUD weakness was good news for GBP/AUD as it traded to a high of 1.5884. The political uncertainty in Europe over the weekend has meant that Asian trading was dominated by risk averse flows and subsequently both of the higher yielding currencies start the week on the back foot. GBP/AUD and GBP/NZD open this morning at 1.5878 and 2.0335 respectively.

by: Mike Jones

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