During early European deals on Tuesday, the pound surged up to near a 4-month high against the dollar as the U.K. stocks rose to the highest level in almost four months and Standard Chartered Plc reported a record profit in the first quarter.
The FTSE 100 Index jumped 108.33, or 2.6 percent, to 4,351.55 in early trade, the highest since January 13. The FTSE All-Share Index gained 2.6 percent. The U.K. market was closed yesterday for a public holiday.
The U.K. benchmark index has rebounded 24 percent from a 6-year low hit in March on optimism that the worst of the global recession may be over. However, the benchmark index is still down more than 38 percent since June 2007 as banks in Europe reported more than $395 billion in credit losses.
UK-based financial services firm Standard Chartered Plc said that it had a strong first quarter, with higher income and profit. The company added that it will recognize a pre-tax profit of $248 million in the second quarter, related to its Tier 2 tender and exchange offers.
In its Interim Management Statement for the first quarter of 2009, the company noted that it remains in very good shape despite the challenging macroeconomic environment and the continuing difficulties in the financial markets, and that the company is selectively growing the business.
The U.K. currency also climbed as the pace of decline in UK's construction sector activities slowed notably in April, compared to previous months, reports said today citing data from the Markit Economics.
The CIPS/Markit construction purchasing managers' index jumped to 38.1 in April from 30.9 in March, marking the highest reading in seven months. However, the reading is still below the 50 no-change mark. Meanwhile, economists had forecast a slight increase to 31.9. UK's construction sector suffered the most in the financial crisis as demand and credit availability deteriorated notably.
The British economy is showing signs of pulling out of its downward spiral after contracting at the fastest pace since 1979 in the first quarter. Last week, the Bank of England said mortgage approvals rose to a 10-month high in March and an index of U.K. manufacturing activity climbed to its highest level in eight months. Consumer confidence rose to the highest in a year in April and the pace of house-price declines is slowing.
In early European deals on Tuesday, the pound strengthened to 1.5113 against the dollar. This set the highest point for the pound since January 12. If the UK currency advances further, it may likely target the 1.538 level. At yesterday's close, the pound-dollar pair was quoted at 1.5021.
The dollar plunged as a rally in the global stock markets reduced demand for the safety of the U.S. currency.
The pound has been steadily climbing against the dollar after it touched a 3-week low of 1.44 on April 22. Thus far, the pound-dollar pair has gained 5%.
The pound, which closed yesterday's trading at 1.6920 against the Swiss franc rose to a 13-day high of 1.7111 during early deals on Tuesday. The next upside target level for the pound-franc pair is seen at 1.716.
The Swiss franc tumbled as Switzerland's consumer sentiment deteriorated to its lowest level since 2003. A quarterly survey from the State Secretariat for Economic Affairs or SECO showed that Swiss consumer sentiment weakened to minus 38 points in the April quarter from minus 23 reported in the previous quarter. Thus, the reading reached its lowest level since 2003. Economists had expected a reading of minus 25 for the April quarter.
The U.K. currency has appreciated 3% against the Swiss franc from a 22-day low of 1.6630 hit on April 24.
During early deals on Tuesday, the pound jumped to a 13-day high of 0.8853 against the euro. This may be compared to yesterday's New York session close of 0.8930. If the pound gains further, resistance is seen around the 0.88 level.
The euro declined on expectation the European Central Bank will trim interest rates this week from the current 1.25% to counter a deepening recession.
Yesterday, the European Commission sharply lowered the GDP outlook for the euro area in its Spring Forecast. The commission expects the EU economy to broadly stabilize on support measures in 2010 after experiencing the deepest recession in the post-war era this year.
The 16-nation euro area is now expected to contract 4% in 2009 and 0.1% next year. In its interim forecast in January, the commission said the euro area will contract 1.9% in 2009 and will grow 0.4% in 2010. In its autumn forecast released in November 2008, the commission had estimated a 0.1% growth this year and 0.9% expansion in 2010.
The Eurostat said today that the Euro zone producer prices declined 0.7% in March from the previous month compared to a 0.4% drop in February. Economists were expecting a monthly 0.6% fall. Year-on-year, industrial producer prices slipped 3.1% in March, larger than the 1.7% decrease seen in the prior month. The annual decline was bigger than an expected 2.9% decrease.
The pound slumped to a 15-day low of 0.9084 against the euro on April 24. Thereafter, the pound recovered and it has advanced 2.5% thus far.
The pound reversed direction against the yen after falling to 147.88 at 11:45 pm ET Monday. The pound-yen pair soared to a 19-day high of 149.86 by about 5:10 am ET Tuesday. On the upside, 151.6 is seen as the next target level for the UK currency. The pair was worth 148.45 at yesterday's close.
The pound-yen pair has strengthened 7% since reaching a 4-week low of 139.07 on April 28 as better economic reports worldwide increased investor confidence that the worst in the global economy may be past, boosting risk appetite.
A report on Friday showed that U.S. consumers felt more upbeat about the economy in April while a key gauge of manufacturing suggested the sector was gradually emerging out of a deep slowdown. Japan reported last week that industrial production rose for the first time in six months and at twice the pace estimated by economists.
The Federal Reserve said last week that the U.S. recession is starting to ease and signs emerged of a rebound in consumer spending and decline in business inventories even though gross domestic product contracted at a worse-than-expected annual rate of 6.1 percent.
Looking ahead, the U.S. ISM non-manufacturing report for April is due at 10:00 am ET.
Federal Reserve Bank of Boston President Eric Rosengren speaks before the Institute of Regulation and Risk-North Asia, Hong Kong at 6:45 am ET.
Meanwhile, the Federal Reserve chairman Ben Bernanke testifies before the Joint Economic Committee at 10:00 am ET.
Also, Minneapolis Federal Reserve Bank President Gary Stern is expected to speak to the Business Law Institute in Minneapolis at 1:15 pm ET. San Francisco Federal Reserve Bank President Janet Yellen is due to speak on the financial turmoil at the Hass Business School at the University of California, Berkeley at 7 pm ET.
Investors are also cautious ahead of the Bank of England's policy meeting on Thursday, where the interest rates are fully expected to be left on hold at 0.5 percent. The market is nervous about whether the Bank will extend its campaign to pump money into the economy through quantitative easing beyond the current 75 billion pounds.
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