The currency blog

Following over two weeks of selling pressure the market seems to be running out of new reasons to sell the pound. We have already heard lots about a hung parliament, the deficit, weak growth prospects, QE and negative M&A flows. The pound has undoubtedly struggled but it seems to have found a bottom for now at 1.50 against the USD and 1.10 on the euro. Recent news that hit the pound was that the European Commission is concerned about the UK’s bulging deficit and the UK needs to dramatically enforce it’s fiscal programme. This did lead the pound lower but it has bounced back and this to me signals that we may have limited downside potential unless we see anything new to attack sterling. The key level against the USD is for a move back over 1.52.

Today we had the German ZEW survey which came in slightly better than expected but lower than last months reading. Therefore this shows a six month consecutive decline in the ZEW survey reinforcing the weak sentiment for Germany. However the euro has held firm and is at the moment above 1.37 against the USD.

Later we have the FOMC minutes and once again the language from the Fed will be all important. Basically if the Fed turn more hawkish then this will allow the USD to rally….the language in recent statements has maintained the “extended period” for keeping interest rates at low levels. With better recent economic sentiment it will be interesting to see if this is reflective in the FOMC.

Discuss on this on the Currency Exchange Forum