Pound Tumbles Against Majors
Tuesday morning in Asia, the pound showed weakness against its major counterparts. The pound thus plunged to a new multi-week low against the yen, 4-day low against the euro and a 5-day low against the dollar and the franc.
The pound remained under heavy selling pressure yesterday as the World Bank reduced its global GDP estimate as well as the outlook for most other economies and warned of a large decline in international capital flows amidst financial market fragility and recession.
Adding to pound’s slide, a recent study by the the Centre for Economics and Business Research revealed yesterday that U.K.’s business services sector will lose more than half of the jobs it gained during the last five years by 2013.
Nearly 334,000 jobs in the business services sector would be disappeared due to the financial crisis and those sectors that rely on the investment cycle, discretionary budgets and public sector spending will suffer the most.
The CEBR projects employment in the sector to fall by 8% in 2013 compared to the peak in 2008 and output to decline 5%. This is in contrast to a 20% rise in employment and 15% rise in output experienced between 2003 and 2008.
The pound, which closed yesterday’s trading at 1.6340 against the dollar, fell to a 5-day low of 1.6268 during early Asian deals on Tuesday. The next downside target level for the pound-dollar pair is seen at 1.621.
In early Asian deals on Tuesday, the pound slumped to 154.78 against the yen. This set the lowest point for the pound since June 01. If the pound-yen pair weakens further, it may likely target the 151 level. At yesterday’s close, the pair was quoted at 156.67.
The yen and the dollar jumped today as a plunge in Asian stocks prompted investors to reduce holdings of higher-yielding assets.
Against the Swiss franc, the pound dropped to a 5-day low of 1.7696 in early Asian deals on Tuesday. This may be compared to Monday’s closing value of 1.7760. On the downside, 1.748 is seen as the next target level for the U.K. currency.
During early Asian deals on Tuesday, the pound slipped to a 4-day low of 0.8510 against the euro. The next support level for the U.K. currency is seen at 0.854. The euro-pound pair was worth 0.8485 at yesterday’s New York session close.
Looking ahead, the final results of the Japanese leading economic and coincident indexes for the month of April are due at 1:00 am ET.
In the European session, the German July GfK consumer confidence index, Swiss May trade balance, French June consumer confidence index are expected to drive deals.
From U.S., the National Association of Realtors is scheduled to release its report on existing home sales for May at 10 am ET. Economists estimate existing home sales of 4.83 million for the month.
The Federal Reserve Open Market Committee is scheduled to meet today and tomorrow to discuss the near-term direction of monetary policy, and the monetary policy-setting arm of the Fed will make an announcement at 2:15 PM ET on Wednesday.
At its April meeting, the Fed maintained its key fed funds target rate unchanged at a range of 0%-0.25%. The FOMC noted that the economy continued to contract, with the pace of contraction slowing somewhat. Despite the stabilization in consumer spending, the committee noted that spending continued to be constrained by job losses, lower housing wealth and tight credit.
Overall, the central bank is of the view that economic activity is likely to remain weak for a time. That said, the committee expects sustained economic growth will resume gradually due to policy actions, fiscal and monetary stimulus and market forces. Additionally, the fed suggested that inflation may remain below rates that are consistent with economic growth and price stability.
