Pound to euro in the doldrums as bad news afflicts both currencies, pound to dollar falls from resistance

Details

Published on Friday, 10 August 2012 09:46

Written by Will Peters

International Money Transfers at our sister site

"The air up around $1.57 proved too thin once again yesterday and this pair saw another sharp correction downwards" - Richard Driver at Caxton FX.

The pound euro exchange rate is 0.06 pct higher at 1.2718.

The euro side of this equation is under pressure as investors shun risk this morning in response to a number of events, primarily lead by China.

But, the currency pair appears to be stuck - a reflection of the negative pressure also bearing down on sterling.


It was reported this morning that UK factory gate inflation prices were unchanged in July from June, according to the Office of National Statistics.

Howard Archer at IHS Global Insight says:

"This reflects the increased pressure on manufacturers to price competitively to gain, or even retain business, in the current hugely challenging environment. In addition, manufacturers’ ability to limit their prices has been helped by the marked overall retreat in input prices in recent months."

Worryingly, input prices rose 1.3 pct over the same period, reflecting firmer oil prices and higher food material costs.

If that continues, it could squeeze manufacturers' margins and pressure them into raising prices, with ensuing consequences for inflation.

This would further compound the desire to keep interest rates in check over at the Bank of England, which is a pound sterling positive.

This positive grows should inflation increase further as the Bank could actually have to start considering raising the interest rate sometime in 2013.

Growing inflation would also have the impact of cooling the desire of the Bank to further the quantitative easing programme which has also been responsible for the poor value of sterling.

The pound to dollar exchange rate is 0.27 pct down at 15597.

The UK currency ran out of steam against its US counterpart yesterday: "The Pound encountered strong resistance in the region of 1.5685 against the U.S Dollar and declined steadily through the course of the day," says Adam Solomon at TorFX.

"The air up around $1.57 proved too thin once again yesterday and this pair saw another sharp correction downwards. There was further evidence of jobs growth yesterday, while the US trade balance was also the best seen since February 2011," says Richard Driver at Caxton FX.

We need to consider the heavier EUR-USD pair too. "The market is getting increasingly concerned with the lack of new developments from the eurozone, which saw a weak EUR/USD pair weigh on GBP/USD yesterday," says Driver.