The pound struggled against the U.S. dollar yesterday, as positive U.S. factory orders data added to hopes of a sustained economic recovery, while concerns over the debt crisis in the Eurozone continued to weigh on risk-related assets. With contraction in the Eurozone, investors waited throughout the day for the Federal Reserve’s meeting minutes (18.00) for future monetary policy hints. The markets turned to risk aversion and investors ploughed into “Safe-haven status” – the dollar.
The dollar rose against most of its major currency counterparts after the Federal Reserve released the minutes of its latest monetary policy meeting last night, revealing that the U.S. central bank is growing less inclined to stimulate the economy via extraordinary measures like bond buybacks from banks. In simple terms they are less inclined to consider measures such as quantitative easing and bond purchases from banks therefore steering the economy away from deflationary decline and closer to growth and hiring, hence the dollar will gain. It will be interesting to see the result of this because it wasn’t that long ago that the US economy was crying out for a round of quantitative easing.
Concerns over the economic outlook for the Eurozone were increased after official data confirmed that the region’s economy contracted by 0.3% in the final three months of 2011, unchanged from a preliminary estimate. Annual gross domestic product contracted by 0.7% in the fourth quarter.
In the UK, a report showed earlier that activity in the construction sector expanded at the fastest rate in 21 months in March, fuelling hopes that the country’s economy may avoid a recession.
Looking ahead for today, it is a busy day in the markets and there are some fundamentals expected that may move markets. In the Eurozone investors will have their main focus on Retail Sales and the Central Bank Rate decision. Retail Sales are expected to decrease so this normally means sterling will gain against euro. We may see US dollar continue to strengthen against the pound.
If this may affect your FX requirements contact a dealer today on 020 72208191 or login to RationalFX now for a live exchange rate.