Weak data raises concerns over UK recovery

Published: 29 March, 2011

Sterling hit a five month low against the euro and a two month low against the US dollar.

Currency rates - 29th March

EURO/GBP - 1.1343

US$/GBP - 1.6021
CHF/GBP - 1.4659
CAN$/GBP - 1.5613
AUS$/GBP - 1.5610
ZAR/GBP - 10.9885
JPY/GBP - 130.687
HKD/GBP - 12.4938
NZD/GBP - 2.1262

SEK/GBP - 10.2090
US$/EURO - 1.4119

Investors have pushed back their expectations of when the Bank of England would look to raise interest rates in the UK. Sterling dropped to a low of €1.1337/£1 in late afternoon trading and $1.5936/£1 earlier in the day. Weak UK data over the last few days, including a downgrade of the UK's growth prospects in last week's budget, have raised concerns over the fragility of the UK recovery. Tied in with the Bank of England's reluctance to act promptly, investors' expectations of an interest rate hike have been pushed back. Out today, there is key trade balance data, lending data and final fourth quarter GDP figures that could see some movement.

In the euro zone, the single currency lost ground yesterday morning as German Chancellor Angela Merkel's CDU party lost a key regional election. However, European Central Bank President Jean-Claude Trichet said in a statement that European inflation was above target levels and as such the likelihood of an interest rate rise in the region was maintained. This helped the euro recover from earlier losses. Today there is German consumer confidence and inflation data.

In the USA, the US dollar was supported by comments from Federal Reserve Bank President Charles Plosser last week in which he made clear that the Fed would need to reverse its loose monetary policy stance "in the not too distant future". In addition, US pending home sales rebounded after a poor January beating expectations by nearly 3%. Out today, there is US consumer confidence figures that could have a high impact on exchange rates.

Elsewhere, the Canadian dollar gained against the majority of its counterparts as oil (the country's biggest export) traded within $3 of a 30-month high on concerns that supply might be disrupted by the Libyan crisis and on speculation that the US economy is recovering.

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