Sterling up against USD, down against Euro

Good Morning. The pound rose against USD yesterday, boosted after better than expected UK manufacturing. Also, mortgage approvals increased optimism that the British economy is improving. Investors selling the USD helped to support the pound, however Sterling fell against the euro after a European central bank was seen buying the single currency before a bank fixing.

Rates @ 08:30am are as follows:

  • GBP/EUR 1.1118
  • GBP/USD 1.6043
  • GBP/AUD 1.7595
  • GBP/NZD 2.1873
  • GBP/ZAR 11.682
  • GBP/CAD 1.6665
  • GBP/JPY 147.52
  • GBP/NOK 9.1454
  • EUR/USD 1.4425

Pound vs Euro
After a disappointing run up to the Christmas Holidays, with the past months fluctuating market being the result of both poor UK and Euro Zone economic data releases, Sterling finally looks set to make a gain on the Euro at some point through the year. The end of 2009 has already seen a gentle rise in GBP/EUR and data yesterday showed strong readings for the UK manufacturing sector and mortgage approvals increased fuelling optimism that the British economy is improving. However, despite gains against the USD, the pound has fallen over a point against the Euro in the first trading day of the year.

The CIPS/Markit purchasing manager’s index on Monday came in at 54.1 for December, up from 51.8 in November and exceeding forecasts for 52.0. The data showed UK manufacturing activity expanded at its fastest in more than two years. Other data showed that British lenders in November approved the highest number of home mortgages since March 2008, while the Bank of England’s preferred gauge of money supply showed a significant increase.

In Europe, concerns have continued to grow over further downgrades in credit-ratings and as banks’ loan losses resurface. Warnings from the European Central Bank (ECB) that Greece needs to restore its sovereign credit-rating by the end of 2010 hindered the Euro further, reinforcing the threat for those selling Euros.

Confidence in the Euro fell further after the announcement of the nationalisation of one of the largest Austrian banks, Hypo Group Alpe Adria.

In conclusion, with slight improvements in GBP/EUR in the past week it is easy to forget the looming threat that the UK could still see it’s Sovereign Credit Rating downgraded. Finally for those buying Euros it may also important to remember that the UK Economy shrank in it’s third quarter of 2009 by a higher than expected 0.2%. The pound is still on thin ice, and it’s more likely to fall than to rise in the current climate.

Pound vs US Dollar
The past week has seen the Dollar forge higher against Sterling benefiting from failing economic data; however the first week of the New Year is packed with important economic events which should help shake up current exchange rates. Broad selling in the USD yesterday coupled with Sterling strength has caused rates to climb slightly.

The more significant events for longer-term direction of the Dollar will come later in the week. The highlights are likely to be Wednesday’s release of the FOMC Minutes; this latest set of minutes from the December meeting may give us a little more clarity on whether the Fed is at all inclined to begin normalizing interest rates in the coming year which would prove positive for those wishing to sell their Dollars.

Friday’s Non Farm Payrolls and Unemployment Rate is the other must watch economic event this week, The unexpected drop in US unemployment at the start of November was the catalyst for the recent turnaround in the Dollars weakening trend; and since that point the upside surprises in other US data include Retail Sales and Consumer Price Index which have led to further appreciation of the Dollar.

Weather you are looking to buy or sell currencies, this first week of 2010 could be a volatile one, contact us today to discuss the options available to you to safeguard your interests and manage any potential losses.

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