Sterling dropped to a five month low against the US Dollar yesterday

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Sterling dropped to a five month low against the US Dollar in yesterdays trading as worries persist on the European debt situation which resulted in limited risk appetite with investors delving into safe haven currencies. The pound is likely to be under pressure for the remainder of the week with rumour suggesting that the Bank of England are considering more monetary stimulus. With forecasts indicating that the Bank of England won’t be raising interest rates till Q1 2012 at the earliest and with poor economic data of late, it will be interesting to see the finalised GDP figure for Q1. It is expected to come in at 0.5%, which the markets will take as disappointing so we could see a further decline for Sterling however it may already be priced in so we may see little movement on the release. The GDP figure (YoY) is also released at the same time with expectations of 1.8% although I see this coming in slightly lower than expected or on consensus at best.

The pound has also lost ground against the Euro with the single currency posting gains on the back of what looks like progress on private bondholder’s participation in the Greek bailout plan with speculation that investors are willing to roll over about 50% of the Greek bonds they hold and purchase 30 year bonds, effectively committing to Greece, and the Eurozone for the long term.

The Euro has advanced against the dollar at the European opening. The single currency dropped against the dollar to a low of 1.4103 yesterday however it has recovered strongly and has pushed up to a new weekly high.

Some clarity on the Greek situation would be most welcome. The only upside I can see for Sterling now is if things take a turn for the worse in Greece, the planned austerity measures aren’t passed by the Greek Government (there are still some Government deputies who dispute some of the medium term measures) and the next round of financing isn’t forthcoming for the Greeks. Otherwise, I see the Euro advancing against the pound and following the EUR/USD move upwards.

George Papandreou, the Greek PM, issued a rallying cry at the start of talks to push through the austerity measures in Parliament by calling on lawmakers to “obey their patriotic conscience” so that “we can close this chapter of uncertainty for the Greek people”. I think the measures will be passed, both on the sale of assets and budget cuts however the majority will be slim at best on these two votes. If the measures aren’t confirmed then we may see the first Euro area sovereign default.

Germany, who have been the glue holding the Euro area together have had the GFK consumer sentiment released this morning with it coming in above consensus at 5.7 against expectation of 5.3. The CPI figure is also expected out of Germany today with any figure to the upside likely to strengthen the Euro.

Out of the US this afternoon we have consumer confidence and the Fed’s Richard Fisher commenting on the dollar and the US economy that may provide some volatility this afternoon. Rounding off the day we have ECB president, Jean Claude Trichet, speaking this evening.

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Sterling dropped to a five month low against the US Dollar yesterday

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