22nd February 2011
Good morning. Sterling fell against the US Dollar yesterday, but is back above €1.19 against the Euro due to the underlying pressures to raise interest rates in the UK. As we focused on the Pound vs Euro rate yesterday, today we’ll have a detailed look at GBP/USD after the usual snapshot of rates as at 08:30am:
- GBP/EUR 1.1913
- GBP/USD 1.6140
- GBP/AUD 1.6143
- GBP/NZD 2.1558
- GBP/CAD 1.5917
- GBP/CHF 1.5263
- GBP/ZAR 11.619
- GBP/JPY 134.06
- GBP/HUF 324.33
- GBP/NOK 9.2673
- EUR/USD 1.3546
Sterling vs. US Dollar;
The GBP/USD exchange rates reached close to a one year high at $1.6241 last week as the Dollar weakened against a basket of the most commonly traded currencies. Cable had been able to hold above $1.61 supported by upbeat economic data from the UK as detailed above and a contrasting mix of domestic economic data from the US.
This unfortunately was not the sum of the US Dollars problems as external factors compounded the negative effects on the Dollar. News of Iranian warships en route to Syria via the Suez Canal rekindled geopolitical tensions in the Middle East causing demand for the traditional “safe-haven” currency the Swiss franc at the expense of the US Dollar; this in turn sparked a spike in oil prices and due to the inverse relationship, the greenback falls when oil, which is priced in dollars, rises.
Where next for the US Dollar?
Although the past week was not a favorable one for the US dollar from a fundamental economic perspective, the developments could lay the groundwork for a rebound. There are a few elements that could reasonably be expected to provide enough support for the greenback, the threat of a sharp drop in risk appetite given the continued uncertainties in the global economy, the inevitable switch to speculation of impending interest rate hikes as we’re currently witnessing in the UK and an improvement in the US economic activity.
Two of these interests have slowly started to firm up for the greenback recently but progress has been limited. We’re so close to a one year high for GBP/USD and as we said in yesterdays report, Sterling has tended to fall away quite quickly following such rises, now would seem like an ideal opportunity to contact FCG to gain a professional opinion on the options available to you whether buying or selling the Dollar.
A quiet day for the UK with only Public Sector borrowing at 09:30am. From the EU we see German consumer confidence. Canada releases retail sales figures in the afternoon followed by US consumer confidence at 15:00pm. Markets await tomorrows BoE minutes which could provide direction for Sterling.
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