Morning Foreign Exchange Bulletin : Sterling Exchange Rate Drops on Worrying CBI Figure

Published: Friday, 25 February 2011 06:40 BST - Written by John Cameron

STORY LINK Morning Foreign Exchange Bulletin : Sterling Exchange Rate Drops on Worrying CBI Figure

Leading stock exchanges suffered varying losses during yesterday’s European and North American sessions, with the FTSE 100 trading almost level on the day, whilst in Europe, the Frankfurt Dax and Paris Cac came under renewed selling pressure. The S&P 500 closed only slightly down on the day, signalling reducing panic in the market than in recent sessions as the situation in Libya appears to be edging towards a conclusion. Forces loyal to Colonel Gaddafi continue to attack insurgents, but the momentum appears to be with the protestors as Gaddafi looks increasingly isolated. Hopes of a resolution in Libya saw Asian stocks make gains overnight, bucking their recent losing streak. With risk sentiment showing signs of stabilising, the US Dollar has lost ground across the board as institutional investors shift their funds out of US T-Bills and into more rewarding assets.

The price of a barrel of crude remains volatile, but has edged downwards from yesterday’s near-term high to currently stand at just below $113 on the spot, whilst the future price has slipped to $110 per barrel, suggesting that this week’s rally is coming to an end, at least temporarily.

Meanwhile, in New Zealand, the Kiwi Dollar continues to trend downwards in the aftermath of Monday’s earthquake. The markets now consider it a near-certainty that New Zealand will cut interest rates from their current level of 3% in order to provide stimulus to an economy which was already ailing before this week’s natural disaster. The Kiwi has traded above 1.35 against the Australian Dollar overnight, which is a few pips away from it’s multi-year low.

The Pound suffered a torrid day on the markets yesterday, losing significant ground against the majors during the afternoon session. This slide was largely due the CBI Reported Sales figures for February, which commentators had expected to come in at 28, following January’s encouraging figure of 37. Analysts were surprised when February’s figure showed a barely positive reading of 6, suggesting that conditions in the UK’s real economy are far from healthy, with consumers proving reluctant to spend in the current climate of austerity measures and VAT increases.

Sterling will gain further direction when the revised Quarter 4 UK GDP figure is released at 0930hrs GMT this morning. The minutes of February’s Bank of England MPC meeting alluded to the importance of this release, stating that an upward revision to the initial quarter-on-quarter estimate of -0.5% would make more members likely to vote for an increase in UK interest rates at March’s policy meeting.

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