UK Manufacturing Falls in January
The pound remained under pressure for the third straight day and is on track to hit its lowest level against the US dollar in ten months after a report showed that UK manufacturing contracted. UK manufacturing fell 0.9% in January, the first time in five months according to a report from the Office for National Statistics. Economists had predicted a gain of 0.2%. Concerns about the UK’s debt rating also pressured the pound. Jeremy Stretch of Rabobank International stated, “Sterling remains weak amid ongoing concerns over debt ratings and political dynamics. The production data may have been impacted by the bad weather in January, and this may play into the broader sterling negativity.”
UK to Devise Strategies to Maintain Extraordinary Measures
Prime Minister Gordon Brown said he will deliver this year’s budget statement on March 24th and said that the UK’s economic recovery is still ‘fragile.’ Chancellor of the Exchequer Alistair Darling said that the government will devise strategies to maintain extraordinary measures as long as recovery is fragile. Political problems have also affected the pound’s performance in currency markets. Support for the Conservatives has been dwindling. The conservatives believe more spending cuts are necessary to maintain the UK’s debt rating. Daragh Maher said in a report that, “It will be an interesting budget, having to strike a balance between doing enough to prevent a downgrade, but giving enough to try and get re-elected. An announcement of a general election should follow shortly thereafter.”
Fitch’s ratings service said the UK needs to reduce budget deficits to 3% of GDP by 2014-2015. A representative of the service said that the UK’s spending adjustments are moving at ‘too slow’ a pace. Investor concerns that the UK is lagging behind the US and other nations in exiting the global recession has made the pound the worst performer in currency markets this year. The uncertain political situation in the UK is putting further pressure on the already troubled pound. Parliamentary elections, which must be held by June could result in political gridlock if either party fails to gain a clear majority and could hamper efforts to deal with massive deficits.
Portuguese Bond Sale, Chinese Data Lifts Euro
Wednesday brought a rare piece of good news for the troubled euro. The euro gained on the US dollar and the yen as strong Chinese export data and a better than expected Portuguese bond sale lifted risk appetite among investors. Portugal, which had planned to sell EUR750 million in bonds, ended up selling EUR990 million worth of long term bonds. Some analysts expect the euro to remain under pressure until some EU nations implement further austerity measures.
Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.
