Sterling has continued it's strong rally, and this morning we have hit new highest rates against a basket of major currencies. The run against the dollar was particularly impressive. Let's take a look at each currency pair in turn.........
Sterling, and the UK economy
One of the reason for the gains, has been Sterling strength caused by yesterdays IMF comments on the UK economy. It was expected that their forecasts for growth were going to worsen from the already bleak outlook they had recently. however, it said that the governments response to the global financial crisis has been bold and wide-ranging.
The IMF is sticking to its forecast that UK GDP will decline by 4.1% this year, compared with the chancellor's forecast of about 3.5%. It also said however, that the speed and strength of the recovery was highly uncertain given the unprecedented nature of the crisis and the importance of confidence on the markets. So, for now the pound is in a great position. The unanswered question is for how long.....
GBP/USD
The US Dollar weakened against Sterling after the FOMC minutes showed it considered adding to money supplies (Quantitative Easing), easing concerns over dollar funding.
The rate started yesterday in the $1.54's, and climbed all the way to well over $1.58 - this is the highest level since November last year. It has since pulled back however, and is currently sitting in the mid $1.57's. "The Fed said exactly what the market wanted to hear so it could sell the USD, although it is too early to say whether it is a decisive trend that will hurt the dollar," said one portfolio manager.
The combined Sterling strength (see above) and Dollar weakness is what has pushed the rate so far. We have various further data (see below) from the states today, so depending how the figures are, rates could continue to climb, or simply snap back and all gains may be lost.
GBP/EUR
Rates have pushed well through €1.14 - the highest level all year for the Euro. This was mainly caused only by the strength of the pound, given the lack of any EU data yesterday. Today we have some PMI data for the Eurozone, but again it will be UK data that drives this currency pair today.
Today's data
UK
Money Supply, Retail Sales, Public Sector Borrowing, and Business investment will all be released today. So, lots of measures that will likely cause further volatility. It's impossible to know what effect this will have. If the data is positive then Sterling's run could well continue, but of course if the data is poor, and if people aren't spending in the shops, it will likely cause investors to be cautious about recovery, and the last weeks gains could be wiped out incredibly quickly.
EU
Just PMI data today. This captures business conditions in the manufacturing sector, and may cause small movements in EUR value.
US
Jobless Claims and a manufacturing survey will be released. Again if the figures are poor, we may see USD rates continue - but bear in mind at some point they will come back down. If figures are bad, today could be that day.
Australia
We have already had some quite poor FX transaction data and vehicle sales data from down under. The poor figures have weakened the AUD, and rates have pushed right back through $2.0380 - it's been hovering below $2 for some time, so this is good news for AUD buyers.
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