The pound fell against the majority of the 16 of the most actively traded currencies yesterday.
The pound was weakened by data showing that UK consumer confidence slumped in June, after the excitement of the Royal wedding and a series of public holidays waned, and households continued to remain concerned about the bleak economic environment.
The GfK NOP Consumer Confidence index, a measure of personal finance, general economic situation and the ideal climate for major purchases and personal savings, slipped four points to a negative 25 from May, when it had increased 10 points.
Barclays Capital Research analysts said, “We believe the fall in consumer confidence has created something akin to a liquidity trap in the UK economy, which has magnified the effect of fiscal tightening as well as making it difficult for loose monetary policy to gain traction. As long as confidence is low, we think the ability of British policy makers to boost consumer demand is likely to be very limited.” Barclays also put back their estimate for the Bank of England to increase UK interest rates from November 2011 to May 2012, further weakening sentiment for the pound.
By contrast, the euro had an impressive day as traders reacted to a second Greek Parliament vote that authorised implementation of the country’s budget cuts. MPs in Athens cleared the way for Greece to receive vital financial aid after passing a bill that that implements the austerity measures they approved on Wednesday after voting yesterday in favour (155 for, 138 against) of the €28 billion of new taxes, €50 billion of asset sales and spending cuts yesterday.
Stock markets across the continent were boosted higher after the result. The FTSE/ASE 20 Index in Athens jumped 1.4% higher.
In addition, Jean-Claude Trichet, the president of the European Central Bank (ECB) reiterated his position that the ECB was in a state of “strong vigilance” over inflation. This is a clear sign that the bank intends to raise interest rates for the Eurozone as early as next week.
A third factor in favour of the euro was the decision of German banks to roll over Greek bonds worth €2 billion that are due to mature in 2014.
The relief over the Athens vote extended to the high yielding currencies like the Australian dollar which gained on the back of renewed risk appetite.
Commentary by Tony Redondo
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
