MisterFund dot com

Image credit to google

The euro continued to drop while the pound rallied, as investors reconsider their forecasts for interest rates in the euro zone and United Kingdom.

Softer economic data from the euro zone — with the German Ifo indicator falling unexpectedly on Thursday and M3 money supply easing to an annual rate of 10.3 percent in March — has cast doubt on the ability of the region to ‘de-couple’ from the U.S. recession and global financial crisis.

Meanwhile, the pound has surged despite data showing first quarter GDP slowed to a three-year low of 0.4 percent, down from 0.6 percent in the previous quarter.

Some experts noted the pound rallied on relief from investors who were braced for a worse growth figure, while others noted that it is a technical correction of previous losses.

‘A lot of negative news for the pound was priced in but not much for the euro — now that situation is being reversed,’ said Hans Redeker, head of forex strategy at BNP Paribas (other-otc: BNPQY.PK - news - people ).

Financial markets have moved from pricing in a European Central Bank rate hike later this year to considering a cut by 2009. The pound, on the other hand, is benefiting from the view that the Bank of England may be able to focus more on inflation if its plan to boost lending in the banking sector proves effective.

‘The debate on monetary policy is shifting because of the liquidity schemes,’ said Redeker.

BoE rate-setters, who on Wednesday were shown to have been split three ways on cutting interest rates, have continued to stress the dangers of inflation.

The fact that GDP did not collapse this morning may have yet supported the view that interest rates will not be cut next month, but only in June at the earliest.

The dollar, meanwhile, has been supported by the belief that the Federal Reserve will stop cutting interest rates after next week’s meeting.

A stabilisation in U.S. equity markets — despite persistently poor economic data — suggests the Fed may consider another rate cut to be enough to support growth, particularly in view of the threat of high inflation.

The final figures for the University of Michigan consumer confidence indicator later in the day are unlikely to alter the dollar’s run.

There is no market expectation of a revision to the preliminary reading of 63.2, and analysts believe that even a downward revision is unlikely to weigh much on the dollar, considering the current positive mood surrounding the greenback.

London 1115 GMT London 0815 GMT

U.S. dollar

yen 104.42 down from yen 104.65

Swiss franc 1.0390 down from Swiss franc 1.0420

Euro

U.S. dollar 1.5586 up from U.S. dollar 1.5573

yen 162.74 down from yen 162.98

Swiss franc 1.6194 down from Swiss franc 1.6215

pound 0.7859 down from pound 0.7897

Pound

U.S. dollar 1.9831 up from U.S. dollar 1.9720

yen 207.07 up from yen 206.37

Swiss franc 2.0604 up from Swiss franc 2.0532

Australian dollar

U.S. dollar 0.9333 up from U.S. dollar 0.9309

pound 0.4706 down from pound 0.4721

yen 97.40 up from yen 97.32

carlo.piovano@thomsonreuters.com

cp//cmr

COPYRIGHT

Copyright Thomson Financial News Limited 2008. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.

Neither the Subscriber nor Thomson Financial News warrants the completeness or accuracy of the Service or the suitability of the Service as a trading aid and neither accepts any liability for losses howsoever incurred. The content on this site, including news, quotes, data and other information, is provided by Thomson Financial News and its third party content providers for your personal information only, and neither Thomson Financial News nor its third party content providers shall be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon.

Sources: Thomson Financial News