Sterling rises against other currencies.

At last! Sterling rose yesterday clawing back from recent dismal losses and hitting a 1 week high against the euro as investors covered short positions in the UK currency following its broad slide in past weeks. At the time of writing, rates are as follows:

  • GBP/EUR 1.1413
  • GBP/USD 1.6310
  • GBP/AUD 1.9477
  • GBP/NZD 2.4078
  • GBP/CAD 1.7965
  • GBP/ZAR 12.679
  • GBP/JPY 150.49

Sterling rise
Weakness in the euro helped to push the pound up against the Euro, in addition to better than expected UK data helping to end the decline of the pound. Traders added UK banks and hedge funds were buying the pound against the dollar, adding an extra boost to the UK currency.

Still, sterling gains were capped and it remained in sight of a 7 week low against USD as weak global shares kept a lid on demand for currencies considered to be higher risk, which include the pound.

“There’s still concern about the UK, especially its budget situation … but the dollar outlook is also gloomy,” said Robert Miniken, senior currency strategist at Standard Chartered in London.

Other data showed net UK lending in July fell at its sharpest pace since records began in 1993 which suggests credit conditions remain tight. Meanwhile, the number of mortgages approved rose to its highest since April 2008.

Also yesterday, we saw UK construction PMI rise to 47.7 in August from 47.0 the previous month, falling at its slowest pace in 18 months. The data has reinforced views the Bank of England will keep interest rates for some time, as reflected by falling UK bond yields, which have been keeping sterling under selling pressure.

G20 and Government Debt
G20 nations must continue spending to ensure the global economy returns to sustainable growth next year, UK Chancellor Alistair Darling has said. Germany and France want G20 nations to discuss “exit strategies” from the measures used to stimulate economies at a G20 finance meeting this weekend.

But Mr Darling told the Independent: “The biggest single risk to recovery is that people think the job is done.” Removing government stimulus packages is expected to be on the agenda when G20 finance ministers meet in London from Friday, ahead of the G20 leaders’ summit in Pittsburgh later this month.

This is key. The UK are trying to spend their way out of the recession, pumping billions of pounds of newly created money into the economy through Quantitative Easing. The EU are not doing this. It’s forecast that the level of UK debt will exceed 100% of GDP, and our children will be repaying this in taxes for the next 60 years. Darling is alone in his views of rescuing the economy, in full knowledge it’s highly unlikely the Labour goverment will be there to sort out the mess. It’s this massive debt that analysts think will keep the pound weak against other currencies for the foreseeable future.

For this reason, a Forward contract is worth considering if you need to purchase currency in the next 6 months. Remember, using FCG to secure your currency can get you better rates than banks and other institutions – it’s why we;re in business, why I’m writing this blog, and hopefully also the reason you are reading it! To benefit from our rates, register for an account. It’s free and does not obligate you.

Todays Data
Australia – We have already had Trade Balance data for Australia – this is the difference in the value of its imports and exports of Australian goods. Export data can give an important reflection of Australian growth, while imports provide an indication of domestic demand. Trade Balance gives an early indication of the net export performance. If a steady demand in exchange for Australian exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the AUD. The figure was expected to be -840m however it actually came in at -1156m – the worse than expected figures have pushed GBP/AUD to 1.9480 at time of writing.

Europe – We have Purchasing Managers Index, Retail Sales, and of course the interest rate decision by the European Central Bank. We expect rates to be left on hold at 1%. Retail sales will be more important, as it measure of changes in sales of the German retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending and can have a big impact on GBP/EUR rates.

United States – We have Jobless claims which is the main news to look for. The G20 meeting will also have an impact.

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