Wednesday during early deals, the pound showed weakness against its major counterparts as UK's consumer confidence fell to a record low in March and the nation's economy contracted in the first quarter of 2009. The pound thus tumbled to a new multi-day low against the yen, while it eased from a 1-month high against the euro.
The economy of Great Britain contracted by an estimated 1.5 percent in the first three months of 2009, according to a study released today by the National Institute of Economic and Social Research (NIESR). The Institute's estimate was slightly lower than the 1.6 percent contraction officially recorded for the final quarter of 2008.
NIESR warned that the figure should not be considered a signal of an improving economy, but simply a very small difference accentuated by rounding. The Institute also said the decline in output is very similar to the recession that began in the summer of 1979. Following the 1980s profile, it said, would indicate a continued decline in output for up to another year.
The Nationwide Building Society said its consumer confidence index fell to 41 in March, from 43 in February. The index also came in below the expected level of 45.
The number of Britons out of work rose above two million at the start of this year for the first time this decade. Analysts expect the jobless total will top three million before the end of the year.
While there are some signs the economy's deterioration is slowing, unemployment is rising at the fastest pace in three decades, pushing Prime Minister Gordon Brown to redouble his efforts before the next election.
The Bank of England will announce its interest rate decision tomorrow, where it is widely expected to leave rates unchanged at a record low of 0.5%.
Bank of England Governor Mervyn King last month took an unprecedented step of cutting interest rates to 0.5% and buying government bonds with newly created money to stimulate the economy.
Equity markets worldwide continued to lose ground today on renewed concerns about the global economy as big U.S. corporations started releasing first quarter earnings results.
Aluminium group Alcoa began the season yesterday, reporting a second consecutive quarterly loss on falling demand and sharply lower prices, dampening investors' hopes of seeing positive surprises in corporate results.
London's FTSE index was down 0.7 percent in morning trade today, led lower by banks and commodity stocks on concerns over corporate earnings. The index is down more than 11 percent for the year after tumbling more than 31 percent in 2008.
The pound fell to 1.4638 against the dollar during early deals on Wednesday. The next downside target level for the UK currency is seen at 1.4585. At yesterday's close, the pound-dollar pair was quoted at 1.4732.
In early trading on Wednesday, the pound weakened against the Swiss franc. At about 4:00 am ET, the pound-franc pair touched 1.6813, down from yesterday's close of 1.6837. The near term support level for the pair is seen at 1.667.
The pound, which closed yesterday's trading at 147.93 against the yen dropped to a 5-day low of 145.79 in early deals on Wednesday. On the downside, 145.1 is seen as the next target level for the pound.
The current account balance in Japan swung to a surplus in February, coming in at 1.116 trillion yen, the Ministry of Finance said in a preliminary report today. That's down 55.6 percent on year, even though it beat expectations for a surplus of 1.071 trillion yen following the record 172.8 billion yen shortfall in January.
Meanwhile, the Bank of Japan maintained its economic assessment by saying that economic conditions have deteriorated significantly in Japan. The BoJ stated, Japan's economic conditions are likely to continue deteriorating for the time being, reiterating its view last month.
The central bank said in its Monthly Report of Recent Economic and Financial Developments that financial conditions have remained tight.
The pound slipped against the euro after hitting a 1-month high of 0.8964 at 1:05 am ET Wednesday. As of now, the euro-pound pair is trading near yesterday's close of 0.9012. If the UK currency declines further, it may find near term support around the 0.911 level.
Germany's Federal Statistical Office announced today that the trade surplus stood at EUR 8.7 billion in February, up from EUR 7 billion surplus recoded in the previous month. Economists had expected the surplus of EUR 7.5 billion.
Looking ahead, the German factory orders report for February is due at 6:00 am ET.
Turning to the US, the Commerce Department is due to release its wholesale inventories report at 10 am ET today. Economists expect wholesale inventories at the end of February to show a 0.6% decline.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 am ET.
At 2:00 pm ET, the Federal Reserve is scheduled to release the minutes of its March 17th-18th meeting.
Along with an announcement to keep interest rates unchanged at exceptionally low levels following its two-day FOMC meeting in March, the Fed said it would purchase $300 billion worth of longer-term securities over the next 6 months. Additionally, the Fed said it will buy an incremental $750 billion worth of mortgage-backed securities and $100 billion of government sponsored enterprises - GSE debt. The Fed also said it intends to add $100 billion to its purchases of agency debt.
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