Market Turmoil continues to affect exchange rates

Tuesday 9th August 2011

Good morning. Sterling continues to trade near a 2 month high against the Euro, which has weakened further as investors worry about the EU debt crisis. The Pound has gained from the US downgrade and Euro weakness. At 08:30am this morning rates are as follows:

GBP/EUR 1.1493

GBP/USD 1.6353

GBP/AUD 1.6072

GBP/NZD 1.9983

GBP/CAD 1.6303

GBP/ZAR 11.826

GBP/JPY 126.48

GBP/DKK 8.5584

GBP/NOK 8.9783

• EUR/USD 1.4229

Market Turmoil continues in US and Europe

This morning stock markets around the world are plummeting, as investor confidence is eroded due to issues in the US and Europe. Following the downgrade of the US Credit Rating, and issues in the Eurozone meaning France’s sovereign credit rating is now at risk, markets are very volatile as investors sell the Euro.

The result is a weaker single currency that is cheaper to purchase, and exchange rates are close to a 2 month high. The US Dollar has fared better, and we haven’t seen a significant weakening of USD as dollar funded asset positions are liquidated.

Sterling could also be at risk with BoE Inflation report

Sterling could be at risk if the Bank of England cuts its growth forecast in its quarterly inflation report due on Wednesday. UK economic data has consistently surprised on signals that it will not raise interest rates within the next year. Although inflation has been stubbornly above the BOE’s target range, the central bank is not going to push up interest rates any time soon.

In fact, some in the market are speculating that the BOE may have to resort to more quantitative easing if growth remains sluggish domestically and external risk factors like a stuttering global recovery intensify. If they do, then Sterling will likely also fall, as it’s only the fact it’s the best of a bad bunch that has given the Pound some support.

Markets are very volatile, and rates could move for or against you as investors buy or sell a currency on the perceived risk. To ensure you don’t lose out, contact us today to discuss our Stop Loss and Limit Orders, which are very useful when exchange rates are so volatile.

Today’s Data

Lots of UK data today; Manufacturing Production, Trade balance, Industrial Production and a GDP estimate. We could therefore see significant volatility for Sterling today. There is also an interest rate announcement and press conference by the US Federal Reserve.

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