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The pound sterling opens the week on the ?back foot?

Published: 9 Jul at 10 AM Tags: Pound Sterling, Euro Exchange Rate, Dollar Exchange Rate, Currency Exchange, Forex, Euro Crisis, UK, Economy, Inflation,

The pound opened the trading week on the ‘back foot’ following the dovish comments from the Bank of England’s latest policy meeting, the first under the guidance of new Governor Mark Carney last Thursday.

This, despite better than expected UK data as BDO’s Business Trends showed that business confidence in the UK reached a 13-month high in June as companies increased both output and job creation.

The BDO report also indicates that inflationary pressures in the UK also appear to be receding as BDO’s Inflation Index decreased from 104.2 to 103.4 easing the financial pressures on UK businesses.

In the US, the dollar eased back from a three-year high against major currency rivals as the market’s focus turned to bond yields but the dollar is expected to gain momentum on rising expectations that the US Federal Reserve will start to scale back its stimulus efforts later this year.

Last Friday saw the release of the latest US unemployment data. Better than expected job data boosted confidence about the underlying health of the world's largest economy and increased the view the US central bank will start to wind down its bond buying programme later this year with September ‘pencilled in’ as the likely start date.

In the euro zone, Greece's international creditors have signalled that Greece is on track in complying with the bailout agreement though they noted that “policy implementation is behind in some areas”.

The Troika, made up of representatives from the European Commission, European Central Bank and the International Monetary Fund completed their review mission to Greece yesterday and reported that “the macroeconomic outlook remains broadly in line with programme projections” although they also noted that the “outlook remains uncertain”.

While the Troika admitted that some policy implementation was behind schedule, the group stated that “the Greek authorities have committed to take corrective actions to ensure delivery of the fiscal targets for 2013-14”.

This approval paved the way for the Eurogroup to release the next tranche of funds available from the bail-out, €8.1 billion.

Further good news for the euro zone yesterday as reports from Portugal indicated that Prime Minister Pedro Passos Coelho has made a fresh deal with junior coalition partner Paulo Portas in order to avoid a breakdown of the government that could put the bailout program in jeopardy.

The Portuguese PM indicated that giving a larger role to Portas is meant to “ensure stability” and “overcome the fragile political situation that we are experiencing”.

The announcement came after credit ratings agency Standard & Poor's downgraded the outlook on Portugal to 'negative' from 'stable' on Friday due to the political turmoil.

The euro strengthened on the news.
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