Currency market news - 21st September 2009

September 22, 2009 - Posted By (Currencies Direct) in (Finance)

The pound came under intense pressure last week falling to 1.10 against the euro and slipping against the USD. The pound has not been helped by wobbly risk sentiment, but the main damage seems to have been inflicted by an article in the Telegraph. The paper reported that Lloyds Banking Group has been forced to abandon it’s plan to withdraw from the Government’s toxic debt insurance scheme after failing to raise enough capital to meet the FSA’s strict requirements.

As we experienced previously jitters in the UK banking sector hurt the pound and given the bad sentiment already surrounding the pound it is no surprise to see it fall on this news. Among the other factors weighing on the pound; likelihood of early move by Bank Of England to cut deposit rate paid on bank reserves; likelihood of additional Quantitative Easing coming soon; and of course dire public finances. The recent rally in the FTSE will have provided the pound with some support- the concern is that if equities sell-off the pound could drop further. We need to see some consolidation over the next few trading sessions to support the pound; the better than expected public sector net borrowing data gave the pound a reprieve but we will need to see more good news to support the limp pound.

On top of the bad news surrounding the pound we have also simultaneously witnessed consistent euro strength against the USD pushing up over 1.47. This has helped to keep the euro strong across the markets and also against the pound. In an article over the weekend the Telegraph are pointing towards GBP/EUR hitting parity in the first quarter of 2010; whilst this cannot be ruled out we must consider that economic sentiment is very fickle at the moment and the tide can change very quickly.

The pound must hold onto the 1.10 level and gain some consolidation- if held this should form a good support area to push back towards 1.15. This week we have the minutes from the Bank of England which will be closely scrutinized on the future strategy of Quantitative Easing. If the central bank avoid discussing the necessity for further QE then we could see a bounce in sterling- this would be unexpected but not out of the question.
 
 
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