Currency Update – Tuesday 10th March

Currency Update – Tuesday 10th March

Sterling was sent tumbling yesterday as the markets reacted to the news of Lloyds' bail out by the government. The slide really started with London trading hours, and Sterling started to fall to sit below 1.09 against the Euro this morning. Lloyds are giving up a large amount of assets to the government for a 75% stake in the bank, and there are concerns that the assets handed over will be the 'toxic' assets, and the government have already said they will be closely inspecting the bank's balance sheet. The bad news from the financial sector wasn't restricted to Lloyds, with HSBC the UK's largest bank getting it's credit rating outlook changed from stable to negative. The start of quantitative easing measures also weighed on the markets, all of which meant that Yesterday was a grim day for Sterling .

Sterling has also fallen against the Dollar although this time it's not just the Pounds woes to blame, the US Dollar has been rising has negative global economic news has led to safe haven flows into the American currency. The World Bank published a report predicting negative global growth, for the first time since the last world war, trade will decline by the sharpest amount in 80 years, and industrial production will fall by 15%. The US administration has been trying to apply political pressure to the EU to apply more economic stimulus plans, all the major governments have already tried to free up the supply of money, by dropping interest rates and in the UK quantitative easing, but the structure of the Eurozone has made it harder for the individual nations to provide their own stimulus packages, like the UK and the USA have done.

Sterling fell below 1.38 against the Dollar, but has rallied back up above 1.3850 this morning. The Dollar is unlikely to weaken much while the global growth figures look so bleak, however the market has also heavily bought Dollars in the last few weeks, so whether the appetite is there for more purchases and a further Dollar rally is doubtful. It looks like the Dollar may be hovering around current levels until signs of a recovery in stock markets and global growth become evident.

We've already had what data is out for the UK today with house prices falling 2.3% in February and retail sales falling 1.8%, which is much more in line with people's intuition after the previous months actually reported a rise. We've had French Industrial production figures, showing a 4.1% drop, and providing a helpful reminder that the UK isn't the only country struggling. It is hard to see were Sterling is going to get the strength to recover it's recent losses, the quantitative easing measures will take a while to have any effect, if they have any at all, so it may take the weight of evidence from a weak Eurozone to allow Sterling to climb against the Euro.

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