News Column

Pound Slides Against Majors

July 29, 2014

BRUSSELS (Alliance News) - The pound declined against the other major currencies in European deals on Tuesday, in reaction to the International Monetary Fund's warning that the currency is overvalued, posing challenges to rebalance the UK economy.

In an update on annual assessment of Britain's economy late Monday, the lender said that the real exchange rate has appreciated notably since the middle of 2013. High Sterling was hampering efforts to balance trade and also widens UK current account deficit.

"Staff estimates that the current account balance is 2.6% weaker than its equilibrium level, and that the real exchange rate is overvalued by about 5-10%." the IMF said.

The Bank of England may need to consider raising interest rates in case macroprudential measures prove insufficient to deal with financial stability risks from the housing market, it added.

UK mortgage approvals increased more than expected in June to the highest level since last February, data from Bank of England showed.

Approvals for house purchases increased to 67,196, a 4-month high, from 62,007 in May. It was forecast to rise moderately to 63,000.

Pulling away from an early high of 1.6994 against the greenback, the pound slipped to near a 5-week low of 1.6950. On the downside, 1.684 is seen as next possible downside target for the pound.

The pound reversed from an early 6-day high of 173.19 against the yen, sliding to 172.83. If the pound continues its decline, it may find support around the 172.00 zone.

Japan's retail sales fell 0.6% on year to 11.351 trillion yen in June, data from the Ministry of Economy, Trade and Industry showed. That missed forecasts for a decline of 0.5% following the 0.4% drop in May.

The pound hit a 4-day low of 1.5328 against the Swiss franc, off early high of 1.5367. The next likely downside target level for the pound may be eyed around the 1.52 region.

After having advanced to 0.7906 against the euro at 4:45 am ET, the pound weakened to a 4-day low of 0.7925. The pound may find support around the 0.80 area.

Germany's import prices continued to decline in June, data from Destatis showed.

Import prices were down 1.2% year-on-year in June, slower than the 2.1% decrease seen in May. The rate of decline came in line with economists' expectations.

Looking ahead, US S&P/Case-Shiller home price index for May and consumer confidence for July are to be released in the New York session.

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Source: Alliance News

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