Market Review - 23/01/2009 23:17 GMT

British pound falls to 24-year low of 1.3500 on recession before rebounding


The British pound tumbled to a 24-year low of 1.3500 after a report showed the U.K. economy shrank last quarter by the most since 1980. U.K. gross domestic product fell by 1.5% during the fourth quarter, much weaker than the economists’ forecast of a contraction of 1.2%. The U.K. economy has shrunk for two consecutive quarters, matching the definition of a recession, however, profit-taking bids ahead of the weekend lifted cable back above the 1.3800 level. The single currency also rallied against sterling to 0.9473. Sterling tumbled to a record low of 118.87 versus the Japanese yen before rebounding to 122.84 on short-covering.

The single currency fell initially to 112.52 and 1.2764 against the Japanese yen and U.S. dollar respectively on concerns of a deepening of the global economic slowdown (eurozone manufacturing and service industries contracted in January for the eighth consecutive month) and then rose to 115.96 and 1.3035 in U.S. afternoon session as U.S. stock markets stabilised. A composite index of both industries based on a survey of purchasing managers by Market Economics was at 38.5, compared with 38.2 in December, which was the lowest since the survey began in 1998. European Central Bank President Jean-Claude Trichet said that no-one is challenging the euro’s credibility.

Dow Jones index fell sharply to 7909 and then rebounded to close down 45 points at 8077. The greenback also rose strongly against the Japanese yen from 87.97 to 89.63 while dollar retreated from 1.1717 to 1.1531 versus the Swiss franc.

Russia’s ruble declined 1.2% to 33.0891 per dollar on Friday as the central bank widened its trading band in a move towards a free float. Investors and Russian citizens withdrew at least $278 billion from Russia since August. The Russian central bank gave a 'final' devaluation statement. The statement and a surge in crude oil prices provided support to the euro.

The Chinese yuan was little changed at 6.8380 per dollar after earlier slumping by as much as 0.3%. The commerce ministry said China is not curbing appreciation of the yuan to promote exports after Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, said this week that China is ‘manipulating its currency’.

Next week will see the release of U.S. existing home sales and leading indicators on Monday; Japan’s CSPI, German import price and Ifo index, eurozone current account, U.K. CBI distribution trade and U.S. consumer confidence on Tuesday; German Gfk index on Wednesday; Japan’s retail sales, U.K. Nationwide house price index, German unemployment rate and unemployment change, eurozone business climate and economic sentiment, U.S. durable goods, new home sales and Midwest manufacturing on Thursday; Japan’s unemployment rate, household spending, Tokyo CPI and industrial production, U.K. Gfk survey, Japan’s housing starts and construction orders, eurozone CPI and unemployment rate, U.S. GDP, Chicago PMI and University of Michigan survey on Friday.

http://www.acetraderfx.com