Foreign Currency Insight: GBP & USD suffer as EUR makes Significant Advance

July 26, 2011 - Written by John Cameron

STORY LINK Foreign Currency Insight: GBP & USD suffer as EUR makes Significant Advance

The Pound Euro exchange rate (GBP EUR) is 1.1266. The Pound Dollar exchange rate (GBP USD) is 1.6332. The Pound Australian Dollar exchange rate (GBP AUD) is 1.4945.

The Pound has opened this morning with widespread weakness against the majority of the majors. Market participants are bracing themselves for the worse ahead of this mornings UK Q2 GDP headline figure. The expectation is that the annualised growth rate will slow to 0.8%, the weakest since the UK emerged from the recession over a year ago. The Pound is suffering on the dovish outlook for UK interest rate policy with investors pricing in an expectation of no change in UK interest rates until the second half of 2012 at the earliest. The GBP EUR pair trades back towards 1.1250 ahead of the announcement, down over 2% from the peak from the last 2 weeks at the height of Eurozone sovereign debt concerns.

The notable exception to Sterling weakness in this mornings trade is the Greenback, the Dollar has suffered from ongoing selling pressure amidst concerns of the US debt ceiling. A pair of back to back speeches from Barack Obama and the House of Representatives John Boehner have failed to offer any form of resolution to the US legal debt limit. Obama made it clear that there was currently no deal in the pipeline and therefore did little to calm market concerns. It is important that measures are implemented soon to pacify ratings agencies who have recently put the US economy on negative watch for a potential downgrade.

The Euro has pushed forward to 1.4512 on the widespread Dollar weakness and could advance further if the US fail to resolve their escalating debt crisis. The EUR/USD is now trading at a 3 week high and is somewhat surprising given the widespread weakness we have seen in the Euro from the past few weeks. There has been a clear shift from Euro selling on sovereign debt concerns to USD selling on legal debt limit concerns. We would expect the EUR/USD pair to retrace on any positive announcement from the US regarding their debt ceiling issues. Key data from the US comes today from the Case Shiller House price index, consumer confidence and new home sales.

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