The pounds gains yesterday
Sterling rose against bothe the Euro and Dollar yesterday, hitting a 4 month high against the dollar, and breaking through 1.13 on the Euro. The pound was buoyed by an improvement in risk appetite which also saw the FTSE rise.
"The stellar performance of sterling is largely as a result of the strong rally we are seeing in the FTSE. Whether the tone will last is very hard to say but Thursday's BoE meeting is key in terms of performance this week," said a strategist at RBC Capital Markets.
Gains may have been higher, but the currency markets are nervous about what the Bank of England will announce tomorrow in terms of more quantitative easing measures. Currently £75 bn has been created and pumped into the economy, and there are fears that this will be increased.
I expect the bank to announce it will go beyond the 75 billion - if they do then expect it to knock the value of Sterling and we may see falling rates.
Sterlings gains may also be short lived after the European Commission revised its UK growth forecasts yesterday. They now say the UK economy will shrink by nearly 4%, whereas the previous estimate was only 1%. It also said it saw growth at just 0.1 percent in 2010, well below the UK government's projection of 1.25 percent.
It's risky times, as the government keep creating money and pumping it into the economy, blindly pinning all their hopes on very optimistic growth forecasts which I don't think anyone believes except the government. Some reports this morning say that the UK face massive tax hikes for years to come to pay back the money.
Recession
In other news that may dent the pound, the National Institute of Economic and Social Research said that the UK recession could be the worst since the early 1930s. However, yesterday the Nationwide Building Society said UK consumer confidence saw its biggest rise in two years last month. So, conflicing views which demonstrate it is impossible to predict which way the pound will go in the coming months.
For those that are risk averse, and would prefer not to gamble on the hope that the pound may recover, then speak to us about Forward Contracts, Stop and Limit Orders, which are tools that protect you against adverse market movements.
Todays Data
UK
Halifax House Prices - expected to show a 1% decline month on month.
Purchasing Managers Index - an indicator of the economic situation in the UK services sector.
EU
Purchasing Managers Index
Retail Sales
Canada
Building Permits
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