Pound to US dollar exchange rate is a Short as GBP is seen to be the FX markets leading under-achiever
- Details
- Category: US Dollar Exchange Rate
- Published on Wednesday, 01 August 2012 12:03
- Written by Sam Coventry
Turning to the markets we see regional bourses are trading largely mixed today, with some decent earnings helping the UK national index.
The pound dollar exchange rate is 0.24 pct lower on a day-to-day basis, poor PMI data from many European countries – the UK especially – was the data highlight this morning. The GBP is the main G-10 under-achiever on the session so far as a result.
And RBS are forecasting further weakness for this FX pairing. A note from the bank released this morning advises that the GBP-USD is a short (ie heading lower):
"We remain of the view that GBP is set for a period of under-performance. First, we believe that there is a risk that the BoE cuts the policy rate sooner rather than later. Secondly, we believe playing GBP’s periphery crisis 'smile', where the currency is vulnerable to being caught up in the Euro area’s problems, still offers decent risk/reward. Finally, the £50bn expansion in the BoE’s asset purchase programme announced in July is still expected to knock just over an additional cent off GBP/USD fair value in the coming months."
Turning to the markets we see regional bourses are trading largely mixed today, with some decent earnings helping the UK national index.
However, major euro zone indices are under pressure on continued resistance over ECB action by the German Bundesbank, sapping hopes for an aggressive policy response by the central bank at this Thursday’s policy meeting.
Better than expected earnings from UK retailer Next and Standard Chartered offsets a nasty reading of domestic manufacturing which fell to 45.4, the lowest level since May 2009.
German and French manufacturing reports also declined, while Chinese manufacturing activity also fell short of expectations.
The data releases from all regions suggests that no country has been spared from the European debt crisis which continues to take its toll on developed nations.
Surprisingly, Spanish and Italian manufacturing readings were a little better than expected, however the fiscal outlook for both countries remain bleak, especially as the ongoing discord between European policymakers causes doubts over an imminent response to arrest the spread of the crisis.
