Sterling Keeps Positions Against Euro And Dollar

Sterling makes fresh 3-1/2 year highs against the euro

Sterling is hovering close to a 3-1/2 year high against the euro as the political and economic woe in Greece continues to weigh heavily on the common currency.

Strong economic growth in Germany relieved some pressure on the euro, which hit its lowest since November 2008 against the pound yesterday (Monday).

Against the euro, sterling stands at around 1.25.

Against the dollar, sterling is steady at about $1.61.

UKForex commentary:

Euro:

Sterling continued to outperform versus the euro on Monday, rallying to a high of 1.2556 during afternoon trading, the highest the GBP/EUR pair has been since November 2008. Concerns surrounding the lack of affirmative action in Greece as the floundering nations political parties once again failed to form a coalition government weighed heavily on the 17-nation euro from the outset of trading as investors continued to fear that a Greek exit from the currency union is becoming more likely by the day. Economic data from Europe did little to bolster better sentiment, with industrial production within the 17-nation union shown to have contracted in March, adding to fears of a recession. The common currency was also driven lower against the USD, as the EUR/USD pair tumbled to a 4-month low of $1.2825. Despite relatively successful government bond auctions from Italy and Spain on Monday European government bond yields still moved higher, in particular Spains 10-year borrowing costs crossed the important 6% level. As usual German government bonds were one of the main beneficiaries of the flight into safety as bund yields touched a new all-time low. The single currency touched further lows on the back of the Moodys Italian bank downgrades during late New York trading but has been helped this morning by a stronger than expected German GDP number and EUR bulls will also be hoping for a firm German ZEW survey later this morning. Headlines from Europe will continue to dominate the currency markets today and on that basis it is safe to assume that the single currency will retain its offered tone. GBP/EUR opens this morning at 1.2513.

United States Dollar:

Risk was well and truly off on Monday, with the USD continuing to strengthen on the back of strong safe haven demand as markets remained nervous due to the ongoing political deadlock in Athens. GBP/USD traded with a steady tone for most of the day but gains were hard to come by as investors saw widening European periphery yields and Credit Default Swaps as a signal to sell risk and buy USD-denominated assets, as evidenced by textbook risk off price action which saw the high beta BRL, ZAR, and SEK as the biggest losers against the USD on the day. Sterling did manage a minor rally to $1.6123 during late afternoon trading but the UK currency couldnt hold onto the gains and closed around $1.6090. The fact that there was very little tier 1 economic data on the first trading day of the week only served to intensify the market's focus on events in Europe and the USD found further bids late in the New York session as the ratings agency Moodys downgraded the ratings of 26 Italian banks. Today the US data docket is pretty full, with retail sales, CPI, and Empire manufacturing to look forward to but we expect that the USD will continue to trade on risk sentiment. Ahead of tomorrows Bank of England Inflation Report it is likely that GBP, along with other risky FX, will continue struggle against the USD but GBP/USD should find decent support at 1.6050. GBP/USD opens this morning at 1.6083.

Aussie and Kiwi Dollars:

Concerns surrounding the ever increasing possibility of a Greek euro exit and worries over a global economic slowdown saw risk get sold off on the first trading day of the week with the usual suspects of the AUD and NZD bearing the brunt of the selling as AUD/USD dropped below parity to trade to its lowest level since December 20 at 0.9956 and NZD/USD fell to a 2012 low of 0.7755. Dampened investor demand for risk assets meant that equities and commodities were well off the boil on Monday, with the S&P500 index posting its lowest close since February and both gold and oil fell to yearly lows as the market shunned anything but the classic safe haven assets. The weakness in the higher yielding currencies transferred to the crosses as a rampant UK currency continued its upward move against both the AUD and NZD as GBP/AUD traded to a high of 1.6154 and GBP/NZD hit 2.0720, both multi-month highs. These moves were a function of a broadly strong pound, with bank of England data showing that the trade weighted value of GBP (as measured against a basket of its most commonly traded counterparts) reached its highest level since August 2009, and the fact that both the AUD and NZD continued to trade well off their best. Overnight the focus was on the RBA minutes which struck a fairly dovish tone, and subsequently the AUD suffered some mild selling. GBP/AUD and GBP/NZD open this morning at multi-month highs of 1.6092 and 2.0717 respectively.

by: Mike Jones

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