Forexpros – The pound pulled back from a two-month low against the U.S. dollar on Friday, paring back some of the week’s losses as concerns over the debt crisis in the euro zone eased.
GBP/USD hit 1.5730 on Friday, the pair’s lowest since March 16; the pair subsequently consolidated at 1.5811 by close of trade on Friday, still down 1.56% on the week.
Cable is likely to find support at 1.5693, the low of March 16 and resistance at 1.5931, Thursday’s high.
Demand for the safety of the greenback remained supported as fears over the possibility of a Greek exit from the euro zone dominated market sentiment, after cross party talks aimed at forming a coalition government failed, forcing another round of elections.
Market sentiment found some support on Friday after an opinion poll in Greece indicated that pro-bailout party, New Democracy was leading the polls ahead of the fresh elections, due to be held on June 17.
Meanwhile, concerns over the health of Spain’s banking system and the prospect of more state bailouts for lenders saw the country’s borrowing costs climb above 6% last week. On Thursday, ratings agency Moody’s cut the credit ratings of 16 Spanish banks.
The pound also came under heavy selling pressure after Wednesday’s Bank of England inflation report revised down growth forecasts, fuelling speculation over a fresh round of easing measures from the central bank.
The report said inflation will not fall back as quickly as hoped and was likely to remain above its 2% targeted rate for at least another year.
BoE Governor Mervyn King also said that sovereign debt crisis in the euro zone posed the single biggest threat to the U.K. economic recovery.
In the U.S., the minutes of the Federal Reserve’s May meeting indicated that several policymakers remained open to further efforts to stimulate the U.S. economy if growth falters or if the risks to the economy became great enough.
Data on Thursday showing that manufacturing activity in the Philadelphia-region contracted for the first time in eight months in May added to concerns over the pace of the U.S. economic recovery.
The Federal Reserve Bank of Philadelphia said that it’s manufacturing index dropped by 14.3 points to minus 5.8 in May from the previous months reading of 8.5.
Analysts had expected the index to rise by 1.5 points to 10.0 in May.
A separate report showed that the number of people who filed for unemployment assistance in the U.S. in the week before last held steady at a seasonally adjusted 370,000, confounding expectations for a decline of 5,000 to 365,000.
In the week ahead, investors will be looking ahead to Thursday’s U.S. data on manufacturing orders, as they attempt to gauge the strength of the U.S. recovery, while developments in the euro zone are also likely to remain in focus.
In addition, the U.K. is to publish official data on consumer prices and retail sales as well as revised data on first quarter growth, while the BoE is to publish the minutes of its May meeting.
Ahead of the coming week, Forexpros has compiled a list of these and other significant events likely to affect the markets.
Monday, May 21
The U.K. is to publish industry data on house price inflation, an important indicator of the housing industry’s health. Later in the day, Bank of England Monetary Policy Committee member Adam Posen is to speak; his comments will be closely watched for any indication of the future possible direction of monetary policy.
Tuesday, May 22
The U.K. is to release official data on consumer price inflation, which accounts for the majority of overall inflation, as well as data from the BoE on public sector borrowing.
Later in the day, the U.S. is to release industry data on existing home sales, a leading indicator of economic health.
Wednesday, May 23
The U.K. is to release government data on retail sales, the leading indicator of consumer spending, which accounts for the majority of overall economic activity, followed by a report on industrial order expectations. In addition, the BoE is to publish the minutes of its most recent policy meeting.
The U.S. is to produce government data on new home sales, a leading indicator of economic health, as well as official data on crude oil stockpiles.
Thursday, May 24
The U.K. is to release revised data on first quarter gross domestic product.
Also Thursday, the U.S. is to release official data on core durable goods orders, as well as a separate report on initial jobless claims, both leading indicators of economic health.
Friday, May 25
The U.S. is to round up the week with revised data from the University of Michigan on on consumer sentiment and inflation expectations.
Forexpros
