Pound Drops Versus Euro After Consumer Confidence Release

The pound dropped against the euro during the overnight trade after UK consumer confidence fell to a record low in February. A Nationwide index sentiment dropped to 38 from previous 47 reading, the lowest since records began in 2004. A Nationwide survey also showed that consumers remained pessimistic about Britain’s housing market, expecting the value of their home to fall 1.1% over the next six months. The UK recovery remains under pressure as there was little positive news in February, especially after the economy contracted in the fourth quarter of 2010 and inflation soared above Bank of England’s 2% target. BoE officials most probably split four ways on their March meeting as they debate whether to increase base interest rate from a record low of 0.5%. BoE’s Minutes report is scheduled for next Wednesday and will bring clearer picture of the MPC’s stance. Separately, Japanese yen dropped 3.5% versus the pound during the overnight trade as the Group of Seven nations pledged to jointly intervene in the foreign-exchange markets. As there are no data releases or policy speeches listed for today, expect for the pound to remain under pressure for the reminder of the week. 

Comments

[Intrinsic Value]

I think the ECB will raise the rate once, however it is diffcult to argue that a series of rate hikes will follow given the current market environment.