UK
On Friday, sterling gained 0.25% versus the euro in the mid-morning session rising to 1.2475 but closed the day down at 1.2422. Sterling has traded as low as 1.2360 this morning.After a week of steady falls against the US dollar, on Friday the pound began to recover and rose to a high of 1.5836 around lunchtime. GBPUSD remained fairly flat over the weekend and opened today at just over 1.58.
George Osborne warned yesterday that Britain faces “enormous risks” from chaos in the Eurozone, admitting that the government is preparing for the crisis to deepen. In a bleak assessment he voiced fears that the turmoil in the European Union may “only get worse”, hampering Britain’s recovery from the double dip recession.
Risk analysts warned yesterday that a Greek exit from the single currency would wipe another 10% off the value of British banks. At the same time, recovery among manufacturers could be strangled by the crisis. With funds pouring into London, sterling is being pushed up to levels that will make exports more expensive, hitting trade and threatening jobs. Sir Mervyn King, Governor of the Bank of England, last week refused to rule out intervention in foreign exchange markets to try to cap the value of the pound, which has risen by 4% since February.
Santander UK tried to reassure its British savers yesterday after a rise in customers withdrawing money in the wake of the downgrading of the Spanish-owned bank. In spite of reassurance from financial experts and officials, some depositors were taking no chances. The British bank, which has 25 million customers, stressed its financial strength and its independence from the crisis buffeting the Spanish banking industry.
The UK housing market has been weaker in the years following the global credit crunch. The government’s first-time buyer stamp duty holiday provided some brief respite in recent months, but it looks like growing concerns over an array of problems will likely weigh on sellers’ pricing power and overall activity levels going forward.
Data released this morning from Markit showed that UK consumers’ spending power was squeezed yet again in April and May as the rising cost of everyday goods, higher mortgage rates and still muted earnings growth weighed on Britons’ ability to spend.
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WORLDWIDE
The euro fell for a third week against the US dollar, reaching a four-month low of 1.2645 on Friday morning after increased concerns the Eurozone debt crisis may spread to other nations in the monetary union such as Spain.
EURUSD fared better in the afternoon reversing the trend moving to session high of 1.2738. The gains continued over the weekend peaking at 1.2797 as the European session opened this morning, above the 1.27 support level established last week and technical experts are eyeing 1.2890 as a key resistance level to breach.
Speaking after the G8 summit over the weekend, US President Barack Obama has said there is an “emerging consensus” that European countries must now focus on jobs and growth, he said the US was confident that Europe can meet its challenges.
Asian currencies had the biggest weekly drop since November as concern Europe’s debt crisis will worsen spurred demand for dollars amid signs the US and Chinese economies are losing momentum.
Canada’s weakened for a third straight week as concern Europe’s debt crisis will worsen overshadowed government data showing inflation and factory sales rose more than forecast. USDCAD has moved from 0.9815 at the end of April to 1.0215 today.
Bank Governor Mark Carney said last month interest-rate increases may be necessary as growth and inflation outpace his earlier projections, and as slack disappears from the economy. Policy makers have kept the benchmark rate at 1% since September 2010.
The Russian ruble depreciated against the dollar for an 11th day, extending its losing streak to the longest in more than three years as oil declined and after a report showed weaker-than-expected Russian industrial growth.
