Why is the pound gaining against EUR, USD?

3rd August 2010
Good morning. The pound rallied broadly yesterday, climbing against most major currencies. Today we’ll take a detailed look at why the pound is gaining against the Euro, and the forecast for August 2010. First the usual snapshot of rates as at 08:30am:

  • GBP/EUR 1.2079
  • GBP/USD 1.5921
  • GBP/AUD 1.7514
  • GBP/NZD 2.1773
  • GBP/CAD 1.6317
  • GBP/CHF 1.6549
  • GBP/ZAR 11.649
  • GBP/JPY 137.14
  • GBP/NOK 9.515
  • EUR/USD 1.3183
So why is the pound gaining against the Euro and US Dollar?

The pound has gained due to increased risk appetite, and also rising shares on the back of the news that HSBC made huge profits in the first half of 2010. Given the financial sector’s hefty contribution to the UK economy, the good news for the UK bank helped lift UK markets and also boosted Sterling significantly.

“Sterling is in the process of a long-term re-rating. The UK had been priced for disaster given the troubles in the financial sector, but now all the reasons for hating the pound have gone,” said Kit Juckes, strategist at Societe Generale.
Renewed confidence in riskier currencies such as the pound has also helped the rally. Also helping the pound was a survey showing growth in Britain’s manufacturing sector eased less than expected in July, with employment and new orders remaining strong.

Weak US Dollar helping to boost rates

Sterling benefited as the dollar came under pressure on concerns the U.S. economy is losing steam after below-forecast growth data last week. This weakened the USD making it cheaper to purchase. Today rates are through $1.59 which is the best in 6 months.

So will rates now continue to climb?

It’s hard to say. On the one hand, a host of better UK data has helped the pound recover significantly in recent weeks. Sterling has been lifted by recent buoyant UK data, including stronger-than-expected second quarter economic growth. However there are some concerns this trend may not be sustainable given the government’s plans for harsh austerity measures.

The key will be the remaining fundamental data releases this week; further better than expected data will likely push the pound higher, but if it’s not as good as forecast, then it would not take much to knock the pound back down.

Regardless which way rates move, we have tools available to ensure you don’t lose out should exchange rates move the wrong way. Coupled with our commercial exchange rates, you can make significant savings purchasing your currency through us as opposed to your bank.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what’s happening in the currency markets.

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