Pound makes gains against Euro and USD

Sterling (GBP) to Euro (EUR)
Sterling edged up against the Euro yesterday as confidence in the strength of corporate earnings continued to support world equities and helped Sterling recover losses after poor growth data on Friday.

Some analysts said the healthy run in the pound against the dollar and euro, largely motivated by the currency’s cheapness after long declines during the credit crunch, was showing signs of vulnerability, which is due to concerns about the UK government’s weak fiscal position.

Minutes from the Bank of Englands July meeting released last Wednesday signalling muted optimism about Britain’s economic prospects provided the impulse for sterling buying.

But Friday’s UK GDP data suggested recovery could be slower than previously thought and added fuel to speculation over new stimulus measures from the Bank of England, which has already embarked on a 125 billion pound quantitative easing programme – this is what’s the main cause of the volatility in the pound right now.

With a light data schedule this week, investors will be focus on consumer credit data from the Bank of England on Tuesday, and CBI distributive trade on Wednesday.

Analysts said the pound might well tread water until next week when the BoE announces its decision on whether or not to extend its programme of quantitative easing.

Sterling GBP to US Dollar USD
The GBP/USD rate traded close to the highest level this year last week, reaching a high of $1.6580 on Thursday, following better than expected retails sales and mortgage approval figures in the UK.

The figures prompted speculation that the recession in the UK is nearing an end and that the Bank of England will look to hike interest rates into the not to distant future, (Some analysts forecasting that the base rate will reach 1.5% by the middle of 2010.)

Sterling’s progress was temporarily halted by considerably worse than expected GDP figures for the UK last Friday, but despite this damaging news the GBP/USD trading levels have remained relatively stable, highlighting the vulnerability of the Greenback on Global Currency Markets in the present climate.

In what is expected to be a more volatile week for Cable there are a number of economic releases which could have an impact on those either buying or selling Dollars. The Chairman of the Federal Reserve (Ben Bernanke) will be making a number of speeches in a week which climaxes with the Q2 GDP figures for the U.S.

Ultimately, whether the figure is good or bad for the U.S economy, the release will have much wider reaching global implications. While, there are a number of leading analysts forecasting that trading levels on the dollar will continue to rise, there is a risk to those buying $’s that the U.S, which was the first major economy to enter recession will indeed be the first out of it, potentially damaging the Pounds value against it’s American counterpart.

All things considered, the direction of Cable is currently the subject of much debate amongst investors as well as analysts and with a plethora of factors pulling the dollar in different directions the outcome remains unclear.

To maximise your gains in a difficult to predict and volatile market speak with your FCG account manager about the benefits of Stop-Loss and Limit Orders.

Todays Data
The only data of note for the UK today is the CBI Distributive Trades Survey. Released by the Confederation of british Industry, it’s an indicator of short-term trends in the UK retail and wholesale distribution sector. This survey tend to have an impact on the formulation of economic policy at the Bank of England and within Government, and as this is a big factor in sterlings value right now, it’s one to watch out for.

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