Pound makes small gains despite drop in consumer confidence

Good Morning. Sterling has risen against both the Euro and US Dollar this morning, brushing off data showing a deterioration in UK consumer confidence. At 09:30am rates are as follows:

  • GBP/EUR 1.1147
  • GBP/USD 1.6024
  • GBP/AUD 1.7522
  • GBP/NZD 2.1847
  • GBP/CAD 1.6629
  • GBP/CHF 1.6551
  • GBP/NOK 9.1409
  • GBP/JPY 147.83
  • GBP/ZAR 11.720
  • EUR/USD 1.4373

Despite the gains this morning, few analysts expect the pound to continue rising, as the UK economy is seen lagging other major countries in pulling out of recession. Also, the Bank of England is expected to keep interest rates low for many months. Gains in the UK currency were capped due to ongoing concerns about the deeply indebted British government, while a looming general election is also expected to pressure the UK currency lower in the mid-term.

UK Manufacturing
UK manufacturing activity grew at its fastest pace in more than two years in December, a survey has indicated. The Chartered Institute of Purchasing & Supply’s purchasing managers’ index rose to 54.1 from 51.8 in November. A score above 50 indicates growth. The survey also found an increase in the new orders index to 57.4, the highest level since July 2007.

Recession
The UK is the only G20 economy still in recession. Latest figures show that the UK economy shrank by 0.2% between July and September last year. Looking ahead, some business leaders are pessimistic about prospects for the UK economy as a whole, according to a separate study released by the Institute of Directors (IoD).

Yes there could be an occasional spurt of activity, but the next two years look pretty glum

“We are very doubtful of a sharp bounce back in 2010,” said Graeme Leach of the IoD. It is predicting an L-shaped recovery, with very weak growth in 2010 and 2011. It also argues that a double-dip or even a triple-dip scenario is potentially possible, where the economy falls back into recession after expanding for a short period.

Summary
We’ve seen the pound rise and fall over a point so far this year, in only 2 trading days. The pound is very volatile due to the economic conditions, debt levels, low interest rates and the general election. It’s hard to predict where things will go, but the first 6 months of the year are likely to still be poor for UK economic figures.

Therefore, if you have a currency requirement for the first 6 months, consider the risk and contact us to discuss the different contract options we have to make sure you’re not leaving it to chance.

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