The pound continued its downward trajectory of the last few days against the euro despite the political uncertainty in Ireland after the collapse of the Irish government there over the weekend after the Green party quit the coalition government.
There seems to be growing optimism amongst traders that European leaders will cobble together some solution to deal with the sovereign debt crisis in Europe which forced Greece and Ireland into accepting bail outs in 2010 and is raising the borrowing costs of a host of other countries including Portugal, Spain, Italy and Belgium. While this sentiment prevails, there appears to be little to stop the euro from continuing its recent rally against the pound and we are now approaching the rates last seen at Christmas time.
Starting tomorrow we have a raft of UK and US data released in the UK with the first release of GDP data for the fourth and last quarter of 2010. Expectations are for a decline from the figure of 0.7% for the third quarter of 2010 to a figure of 0.5%. However, December’s bad weather could well throw a curve ball into the equation here and see the figure come in lower. With public finance data also due out the same day traders will have a lot to digest in relation to the pound and may well mark it down once again.
The release of the minutes of the Bank of England rate setting meeting from earlier this month on Wednesday followed soon after by the first Federal Reserve rate setting meeting in the US of 2011 as well as US GDP data for the fourth quarter of 2011 could well make this an interesting week for the pound/dollar rate.
The dollar came under pressure against major currencies on Friday with the euro reclaimed a 2 month high against the US dollar.
Meanwhile the pound continues to make gains against the high yielding commodity driven currencies like the Australian, New Zealand and Canadian dollars and South African Rand on the back of market concerns about a possible slowdown in China could dent demand for the raw materials exported by these countries.
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.”
