Sterling appreciated on leading of Conservative party

Friday, April 16, 2010

The Euro snapped five days of gains against the greenback as concerns begin to grow that the European Union’s latest rescue plan for Greece- a €45billion bailout package – won’t be enough to restore the single currencies value. The European Union’s single currency fell sharply against all but 2 of its 16 most traded currency counterparts, as the extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds rose above 400 basis points for the first time since Greece’s bailout package was announced last Sunday. The EUR/USD hit a fresh weekly low of $1.3515.

The yield on Greece’s 10-year notes advanced 0.02 percentage point to 7.09% on concern Greece’s won’t get the fund it needs to fund a deficit that is 12.9% of gross domestic product, the biggest in the Euro’s history. The Parliaments of Germany, France and Ireland must first vote on whether to contribute their share of the EU loans.

This morning (1000GMT), Eurostate will release the annual Consumer Price Index for the entire continent. The market expects that the annual adjusted inflation will continue to increase at 1.5%, and that core CPI is expected to be revised from 0.8% to 0.9% - however, only a substantially rise in this figure will push the ECB to contemplate a rate hike.

The British Pound rose 0.6% to 87.77 pence against the euro after a survey showed the Conservative Party has extended its lead over the reigning Labour Party, easing concerns that next month’s election won’t produce a clear winner. The Sterling appreciated for a second day in a row against the single European currency after Britain’s Daily Telegraph published a poll showing that the Conservative party was in the lead with 43% support rate, compared to the Labour party’s 31% support. This poll signals that the U.K turbulent political situation is beginning to stabilize, which, according to analysts, is particular good news for the country’s currency which has recently suffered on concerns that U.K will not have a majority government following the next election. While early in the day during the European trading session, the pound dipped as low as $1.53840. However, the British currency managed recover during the U.S trading session, to reach a high of $1.5509. The GBP/USD closed the day at $1.55002 in the forex online market.

Across the Atlantic, the number of Americans filing claims for jobless benefits unexpectedly increased last week, indicating the improvement in the labor market will take time to unfold. Labor Department figures showed yesterday that Initial jobless applications rose by 24,000 in the week ended April 10; however a Labor Department spokesman said the rise in claims was due more to administrative factors reflecting volatility around Easter than economic reasons. None the less, the number of jobless names passed the market predicted vale of 439K, to reach 484K – the highest level since February 20th. Reluctances among some companies to hire is among one of the biggest challenges facing the economy as it recovers from what is considered the worst recession since the Great Depression. Employment gains are needed to help stimulate consumer spending, which accounts for about 70% of the economy. This disappointing figure comes one day after Fed Chairman Ben S. Bernanke told congress that high unemployment and weak construction are among the “significant restraints” on the pace of growth. However despite a worse than expected result, the U.S Dollar was up against the euro following the release of the joblessness claims, with the EUR/USD shedding 0.82% to reach 1.3441.

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