Analysis / Daily / Finance / forex

Sterling slips to two-week low against resurgent euro

Sterling continued its 10-day decline against a resurgent euro yesterday, falling to its lowest in two weeks, as investors looked ahead to British growth data later in the week. With Chinese market turmoil and a slide in commodity prices throwing doubt over the strength of global growth, some sterling traders are starting to question whether the Bank of England will raise interest rates as soon as many had pencilled in. Soft British retail sales figures last week set a downbeat tone for the pound, culminating in its biggest weekly fall against the euro — and on a trade-weighted basis — in almost three months. All eyes are now on the first snapshot of second quarter growth due this morning, which is expected to show Britain recovered from a surprise slowdown in early 2015 and grew by a quarterly 0.7 percent, back to the kind of pace seen at the end of last year.

A rise in German business confidence and signs of a pick-up in lending in Europe gave a boost to the euro on Monday. The single currency jumped more than one percent against the dollar, hitting US$1.1132, the highest level in two weeks, before easing to US$1.1091 in late trade. Behind the gain was a jump in the growth of the M1 measure of euro-zone money supply, to 11.8 per cent in June, signaling strengthened overall growth. Added to that was a gain in the Ifo index of German business confidence, which rose to 108 points, the first increase in three months, from 107.5 in June.

The dollar firmed this morning as cautious investors covered short positions ahead of the start of a two-day US Federal Reserve meeting and as a continued slump in Chinese equity markets sapped appetite for riskier assets. The safe-haven yen was below the previous session’s highs hit after Shanghai stocks tumbled 8.5 percent, their biggest drop in eight years, which helped pull down European and US share markets. Some investors believe the Fed’s rate-setting Open Market Committee is laying the groundwork for hiking rates this autumn, which has underpinned the dollar in recent weeks. After this week’s Fed meeting, the next main event for the dollar will be second-quarter US gross domestic product, the first estimate of which will be published on Thursday. The economy is seen returning to growth, expanding by 2.7 percent, after a contraction in a weather-hit first three months.


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