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Sterling making gains versus Euro and USD

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The Pound made gains against the Euro and the Dollar yesterday coming back following a report that the British Chambers of Commerce cut its growth forecast for the U.K. economy from .8% to .6%. They also predicted that rates would not rise until the end of 2013 and that the Bank of England would not add to their asset purchase stimulus. The Bank’s Monetary Policy Committee meets this week on the 8th, where they are expected to keep their bond-buying target at 325 billion pounds.

The Dollar declined against the Euro and the Pound as fears return that the recent economic malaise will not be contained to just the Eurozone. A recent report from the Chinese government, in which they lowered the outlook for the world’s second largest economy to the weakest level since 2004, has spurred a selloff in global equity and commodity markets. Meanwhile, US factory orders contracted by 1%, down from last month’s 1.4% gain, but better than the 1.5% shortfall that was expected. However, ISM Non-Manufacturing, which takes into account consumer spending, or nearly 90% of the economy, unexpectedly gained to 57.3 from 56.8 in the previous reading.

The dollar is however lower amidst rumours that a number of Asian governments have begun operations to weaken their currencies after a strong start to the year. Through these actions they will buy dollars, but then diversify a portion of those holdings into other G10 currencies, namely the EUR, GBP and JPY. For the week ahead, focus will be squarely on the US labour market with several private payrolls report due early this week in the run up to the nonfarm payrolls and unemployment reports, both of which are expected to show continued improvement.

The Euro declined against the Pound while making gains against the Dollar after earlier reaching a 2 week low vs. the dollar on signs that an economic slowdown is underway in Europe and weaker growth in China, heightening global growth worries.

The single currency fell to lows at $1.3158 from last week’s peaks at $1.3485 as the fading boost from the ECB’s EUR 500 billion liquidity injection gives way to recession worries. The Eurozone Purchasing Manager’s Index (PMI) fell to 49.3 in February, below the 50 threshold denoting contraction. The report was dragged down by downturns in Spain and Italy while Eurozone anchor, Germany, reported expansion, albeit at a slower pace. News that China cut growth targets from 8% to 7.5% added to risk aversion, further denting the euro, and raised concerns that recession in Europe may spill over into a global economic slowdown. With pressure on the euro returning, Europe will have allayed concerns that it will struggle to find its way back to growth.

Data released 06.03.2012

EU 10.00 Revised GDP (Q4

This mornings interbank rates

GBP/EUR 1.2017 HIGH- 1.1973 LOW

EUR/USD 1.3225 HIGH- 1.3162 LOW

GBP/USD 1.5881 HIGH- 1.5776 LOW

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