Pound gains and exchange rates rise

Good Morning. Yesterday saw the pound rise against most currencues after it emerged that the Bank of England may not be planning to lower the interest rate it pays on commercial banks’ reserves any time soon, a move that would have effectively loosened monetary policy further. Rates at 08:30am stand as follows:

  • GBP/EUR 1.0998
  • GBP/USD 1.6065
  • GBP/AUD 1.8259
  • GBP/NZD 2.2286
  • GBP/CAD 1.7345
  • GBP/CHF 1.6604
  • GBP/ZAR 11.824
  • GBP/JPY 144.16
Pound Gains
The pound, which had earlier this week sunk to multi-month lows against the euro, dollar and yen, got some relief.The thinking of BoE policymakers, according to economists present at the meeting, together with Confederation of British Industry data that showed a surprise rise in retail sales caught out a market that was positioned for more sterling weakness.
Economists at the BoE seminar also indicated the Bank was unhappy with the way the currency market reacted to Governor Mervyn King’s remarks last week on the benefits of a weaker pound to the fragile economy. Sterling had been below $1.60 against the dollar, and below €1.10 against the Euro, however rates have recovered back to these levels.

Also, better retail sales and and the Confederation of British Industry data prompted a scramble to buy back sterling and drag it further up from the multi-month troughs against major currencies it struck earlier in the week.
Sales rose unexpectedly in September and stores were optimistic that sales would continue to grow in October, the CBI said. This gave the market direction it had failed to get from an earlier batch of UK economic figures on the current account, growth, mortgage lending, money supply and consumer credit. The better figures plus the BoE comments are what caused the pound to rise.

GDP Figures

The rate of contraction of the UK economy in the three months from April to June has been reduced again. Gross domestic product (GDP) fell by 0.6% compared with the previous quarter, better than the previous estimate of a 0.7% contraction.
The latest improvement came mostly from the manufacturing and construction sectors of the economy. It suggests that the UK may see more signs of recovery, and possibly even growth, in the third quarter. However, as you can see from the above chart, the economy is still in very bad shape, and there is still the risk of a double dip recession.
Summary
Rates have spiked, and usually spikes such as this are short lived. If you want to eliminate the risk of rates dropping, then you can lock in the current rates with a Forward contract for up to 2 years and only pay a 10% deposit of the total you need to secure. This protects you against a down turn in rates.
If you do want to hold out for a higher rate, then decide what you’re aiming for and place a Limit Order. This way the rate can be secured if it becomes available. At the same time, a Stop Loss order can be placed at the bottom end, so if rates don’t go your way, you give yourself a worst case scenario, and are not simply leaving things to chance.
Finally
In what will be another blow to Gordon Browns government, the Sun newspaper has this morning ‘dumped’ labour… Read the story here.

Todays Data
Aus – Retail Sales
Aus – Building Permits
NZ – Business Confidence
Ger – Retail Sales
Ger – Unemployment
EU – Consumer Price Index
Can – Gross Domestic Product
US – Gross Domestic Product

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