Good Morning. Sterling rose against a broadly weaker dollar on Tuesday, although gains were somewhat hampered as data showed growth in UK manufacturing activity unexpectedly slowed. Rates @ 08:30am are as follows:
UK House Prices
The pound also rose slightly after better than expected UK house price data. UK house prices have risen for the seventh consecutive month, helped by better-than-expected news from the job market, the Nationwide has said. But overall there has been some surprise that prices have continued to rise steadily in the recession.
The Bank of England yesterday said Britain’s economy has probably passed its low point and is likely to recover strongly over the coming years, but inflation was not an immediate threat.
A Reuters poll on Tuesday showed all respondents said the BoE has nearly finished with its quantitative easing programme but won’t raise interest rates from their record low until at least October next year. This is good news in one way, as it indicates that the UK may finally be catching the rest of the world up in exiting recession.
however, the fact that our rates are likley to stay at record lows for nearly another year means the pound will probably remain weak. The EU and USA are likely to start raising their interest rates into next year, and this means more return for investors, and thus more investment into these currencies. More investment strengthens the currency.
With rates likely to remain low in the UK, it wont be an attractive investment, and so other major currencies are likely to rise before ours, and this will hamper a recovery in Sterling Exchange rates.
Weak US Dollar pushes up gold
A weak US dollar has pushed up demand for gold to another record level. Gold struck $1,201.63 (£722.69) an ounce on the London Bullion Market, after striking historic peaks over recent weeks. Demand for gold has been fuelled by moves by central banks to diversify assets.
A weaker dollar makes gold cheaper for users of rival currencies, which stimulates demand for the precious metal. In turn, this pushes up the price in dollars.
A weak dollar is also good for those needing to buy them with Sterling. Rates were as low as $1.30 earlier in the year, and now stand at $1.66. The dollar is weak because as the world exits recession, many investors that had funds in USD as a safe haven are now moving into other currencies weakening the dollar. The pound is not one of the currencies benefiting however due to our low interest rates. The dollar weakness wont last forever, so those with a need to purchase USD should consider doing so sooner rather than later.
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