After posting losses for three days GBP/USD holds steady following reports revealing improved business and employment confidence in the UK. However, continuing weakness in the Pound could see the pairing resume its decline.
The Pound Sterling Exchange Rate was in the region of 1.4906 against the US Dollar as of 10:21 am
This morning BDO LLP released its business Optimism Index, and given the poor manufacturing and construction figures we have seen lately, the result was stronger than you might expect.
The index records UK business confidence, predicting business performance two quarters in advance.
In January the index dropped to 88.9, a 21-year low, but in February business confidence rose to 90.6.
This result, although an improvement, is still below the 95.0 threshold indicative of growth. The BDO also asserted that although confidence might be modestly improving, businesses aren’t expecting to see growth in the next six months.
In a separate report compiled by Lloyds Banking Group Plc an index of employment confidence modestly improved, climbing to minus 44 in February from minus 45 the previous month.
These results, although not positive enough to trigger widespread Sterling gains, did prevent the British currency from falling further against the US Dollar – despite the American currency broadly strengthening on strong US economic indicators.
The Pound was also able to post modest gains on the Euro after Fitch lowered Italy’s sovereign credit rating and Italian GDP was shown to have fallen by more than expected in 2012. Meanwhile, separate data revealed that a surge in German imports narrowed the trade surplus of the Eurozone’s largest economy, raising concerns regarding how much the nation will be able to contribute to recovery in the currency bloc in the first quarter.
However, Sterling is still looking weak and industry experts like Christopher Lewis aren’t seeing the Pound making significant gains in the foreseeable future.
This morning Lewis stated on DailyForex: ‘It’s hard to believe that the Dollar will weaken against the Pound anytime soon […] With the Bank of England seemingly painted into a corner, it appears that the markets are anticipating the inevitable quantitative easing having to come out of London. That being the case, it may be a while before we see any serious recovery in this market.’
Sterling volatility can be expected tomorrow following the release of house price figures and manufacturing/industrial production data for the UK.
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