Analysis / Daily / Finance / forex

Sterling Drops to 1 Month Lows

One Pound

Sterling fell 1 percent against the euro and nearly 0.7 percent against the dollar on Wednesday, after Britain’s finance minister announced spending cuts in a budget speech that also lowered growth forecasts. Growth for 2015 was forecast to be 2.4 percent, down from a forecast of 2.5 percent made in March, George Osborne told parliament, although the economy was still expected to outpace the U.S., Germany and France. Sterling was down, having hit a four-week low of $1.5353 just before the first solely Conservative budget in two decades was delivered at 1130 GMT. Sterling was also down 1 percent against the euro. Sterling had jumped on the back of some better economic numbers in recent weeks. But with Greece’s problems threatening another shock to European economies, Osborne’s pledge to go harder on austerity and start reducing overall debt soon bodes ill for the immediate growth outlook, analysts said. Traders said doubts over growth and fiscal tightening could see markets re-price expectations of when the Bank of England would start to raise interest rates. Investors are currently pricing in a chance of the first rate hike in the second quarter of next year.

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The euro has recovered some ground in today’s Asian sessions as investors looked to China’s stock market and a stability loan for Greece as key touch points as well as data from China and Australia on prices and jobs respectively in a busy regional day. EUR/USD traded at 1.1075, down 0.02%. Eurogroup President and European Stability Mechanism Chairman Jeroen Dijsselbloem sent a letter to the top euro zone economic officials asking them to assess Greece’s request for a stability loan. If an agreement on Greece cannot be reached in time, European Union leaders will hold an emergency summit in Brussels on Sunday to discuss how to contain the fallout from a Greek exit from the euro zone.

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The dollar remained broadly lower against a basket of other major currencies on Wednesday, amid fresh hopes for a solution to Greece’s debt crisis after euro zone officials gave the country until Thursday to present new proposals to secure a deal with creditors. The yen rallied as Chinese shares continued to plunge overnight, bolstering demand for safe haven assets. USD/JPY was last down 1.16% to 121.11, the lowest level since May 22. Elsewhere, the dollar was higher against the Swiss franc, with USD/CHF rising 0.41% to 0.9505. The dollar lost 0.32% against the euro to 1.1047 after European leaders handed Greece an ultimatum – it has five days to strike a new bailout deal with its euro zone creditors or face a banking collapse. Against the pound, the dollar was up 0.77% to 1.5341 The U.S. Dollar Index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.26% at 96.63, not far from Tuesday’s one-month peak of 97.45.

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