Pound Sterling Falls Against 16 Major Currencies

The Pound Sterling fell against the majority of the 16 most actively traded currencies yesterday as further bad data continues to hit confidence in the UK economy ahead of today’s Autumn statement from the Chancellor.

Markit reported yesterday that UK construction firms are reporting their lowest confidence levels in over four years with output falling for the third time in the past four months. Of concern, the report also warned the sector has yet to reach rock bottom!

Residential building has now dropped for six months in a row while the latest fall in commercial construction was the steepest since December 2009.

Tim Moore, Senior Economist at Markit, suggested that a protracted decline in workloads, the double-dip UK recession and shrinking investment spending had made 2012 a year to forget for the whole construction sector.

Meanwhile, Dr Howard Archer, Chief UK Economist at IHS said the survey intensified the case for strong government initiatives to try and lift infrastructure activity and house-building.

Later today, UK Chancellor George Osborne is likely to announce further tax rises on the UK banking sector for the fifth year in a row as he sets out the need for deeper and longer-lasting spending cuts in what most analysts predict will be a bleak mini-budget.

Elsewhere, the US dollar fell across the board yesterday on fresh concerns about the so called ‘fiscal cliff’. The dollar felt the affect of ever increasing and persistent uncertainty over whether Republicans and Democrats can reach a deal to prevent spending cuts and tax increases in 2013 that would send the US economy back into recession.

The Australian dollar made strong gains across the board after the Reserve Bank of Australia cut its key benchmark interest rate by 0.25% to 3%, a move that was widely expected in an effort to stimulate the domestic economy on the face of a slowdown in the commodity sector that has been instrumental in lifting the Australian economy in the last decade.

The euro also had a good day, making gains against the pound and the US dollar after Greece announced the results of a bond buyback auction where results exceeded market expectations.

However, plans to create a euro zone banking union hit a snag yesterday after Germany’s influential finance minister cautioned over moving too quickly, casting doubts over whether the European Union would achieve an agreement ahead of a budget summit next week.

As expected, the Bank of Canada held its key benchmark interest rate unchanged for the 18th month in a row and the minutes of the policy meeting suggest that it continues to feel that the Canadian economy is poised to improve in the New Year and also suggest that interest rates will need to rise at some point in the future.