Sterling Exchange rates recover

Sterling has climbed and recovered some of its losses following the political uncertainty at the end of last week. At the time of writing, rates are as follows:

GBP/EUR 1.1592
GBP/USD 1.6164
GBP/AUD 2.0370
GBP/NZD 2.5936
GBP/JPY 158.60

The main reason for the gains are two fold. Firstly the cabinet re-shuffle seems to have settled the ship in government, at least for the time being. The chances of a general election this year are very slim, and so the renewed stability has renewed investors confidence in the pound. There was relief too that the political troubles facing Prime Minister Gordon Brown appear to have calmed for now, with Labour Party members offering their support to his leadership on Yesterday.

Secondly, and more importantly there is renewed confidence in the UK housing market, which has really boosted the pound this morning.

UK Housing Market
A survey by the Royal Institution of Chartered Surveyors showed house prices in England and Wales falling at their slowest annual pace in November 2007. The RICS survey, which has been running since 1978, takes a snapshot of the degree of confidence in the market from surveyors and estate agents across the UK.

“On the face of it, the housing market does appear to be close to bottoming out with activity picking up in a material way and prices at last stabilising,” said Rics spokesman Ian Perry.

On 4 June, a survey by the Halifax said that UK house prices rose by 2.6% in May compared with April but activity remained low in the market. This came shortly after the Nationwide building society reported a 1.2% rise in prices in May compared with April – the second rise in three months. Further housing data today may support this, so for Euro buyers it’s good to see that the slump in recent days looks to be short lived. Euro sellers however, should take note that analysts believe the Global recession is easing, which could cause rates to continue moving the wrong way.

Global Recession.
The pace of decline of the world’s major economies is slowing, according to the Organisation for Economic Co-operation and Development (OECD). The global economy is poised for its worst year since World War II as the major economies have fallen into severe recession.

The organisation said countries not included in the OECD were still declining at a fast pace, with the exception of China and India. Both those countries showed similar signs of easing to the US and Europe.

The data points to a “reduced pace of deterioration in most of the OECD economies with stronger signals of a possible trough in Canada, France, Italy and the United Kingdom”, the OECD said.

World stock markets and Sterling have recovered from their lows in March on hopes for a global recovery, based mainly on survey data of consumer and business confidence. So, the recession is still here, and it just seems that the slowdown has eased. This doesnt mean of course that everything is suddenly rosy, it just boosts investor confidence, which for the time being is helping the pound. Of course, any negative data in these turbulent times could cause rates to drop away again as quickly as they have recovered.

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Todays Data
We have already had Trade Balance data for Germany as mentioned in yesterdays report. This was as expected, and so has not had much effect on rates. Also from Germnay, the largest economy in the EU, we have Industrial Production data at 11am. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. If the result is higher than expected, then GBP/EUR rates may fall. If lower, then we may see rates continuye to climb.

For the UK today, all we have is DCLG house price data, which may support the positive data from yesterday. Other than this, it is continued political developments that’s likely to effect Sterlings value.

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