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STERLING CONTINUES TO LOSE GROUND AGAINST THE EURO

 
19 July 2010

Sterling ended last week on a weaker note with profit taking after recent strong gains against the dollar but also dropping back against the euro, which at last managed to maintain a breach of the stg84p level. News overnight of a 0.6% in Rightmove house prices has had little impact. While there is nothing else on the calendar today, there are plenty of domestic factors later in the week to provide sterling direction, including Wednesday’s minutes of the July MPC meeting and the first reading of Q2 GDP growth.
Looking at the Pound against its counterparts Sterling extended the decline from the previous week and slipped to a low of 1.5259 during the European trade, and the GBP/USD appears to to look slightly vulnerable going into the US trading session after loosing 50 pips at the opening today. Sterling against the Euro continues to loose ground and is now currently 7 points down from the high of 1.24 only a week ago, thus buyers are advised to work protective “Stop Orders” to protect against any further downside movement.
Looking at the key exonomic data releases overnight and today – Moody’s Investor Services downgraded its credit rating for Ireland to Aa2 from Aa1 following a “significant loss of financial strength” in the region, but held a “stable” outlook for the nation as the government takes unprecedented steps to address the budget deficit. Meanwhile, Bank of England board member Andrew Sentance maintained a hawkish bias for monetary policy during an interview with the BBC Radio and said that a “gradual” rise in the interest rate will certainly help to temper the risks for inflation, and went onto say that the central bank will have to take the appropriate steps “to support the recovery” as households continue to face tightening credit conditions paired with the deterioration in the labor market.
The upcoming economic calendar is full of event risk for the pound starting with the Public sector net borrowing report which is expected to show the deficit in June was 13 billion compared to May’s 16 billion. A shrinking deficit may raise the outlook for a rate hike with inflation above the central bank’s 3.0% threshold. The June retail sales report and the reading for second quarter GDP are forecasted to show sustained domestic demand and growth which would continue the theme of strong U.K. fundamentals and could restore bullish sterling sentiment. However, corporate earnings can’t be discounted and their potential impact on broader sentiment may have a greater impact on short-term price action.

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Tom Trevorrow
Currency Analayst
Tor FX

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