Thursday, 9 December 2010

Pound gains vs Euro, BoE and Trade balance today

9h December 2010
Good morning. After a very flat start to the week, yesterday the pound gained against the Euro and US Dollar, following a surge in industrial orders which was a further indication that UK economic recovery is gaining momentum. Rates at 08:30am are as follows:
  • GBP/EUR 1.1900
  • GBP/USD 1.5814
  • GBP/AUD 1.6010
  • GBP/NZD 2.1107
  • GBP/CAD 1.5947
  • GBP/CHF 1.5535
  • GBP/ZAR 10.892
  • GBP/DKK 8.8690
  • GBP/JPY 132.48
  • GBP/HUF 328.79
  • EUR/USD 1.3287

Industrial orders boost Sterling

Industrial orders rose to their highest since June 2008 yesterday surprising the markets. The news follows Tuesdays better than expected Manufacturing data, and this has increased the value of Sterling.

"The decent numbers out of the UK, plus the peripheral concerns in Europe, have tended to push sterling up," said Adrian Schmidt, currency strategist at Lloyds. Yesterday rates vs the Euro broke through €1.19 again, touching a 10 week high.

While the problems in the Eurozone remain, the Euro is also weak which is also the reason GBP/EUR rates have risen again. Rates didn't last long above €1.19 though and have already dropped back this morning following a fall in house prices according to data from the Halifax. Markets are also waiting ahead of the Bank of England interest rate decision later today.

Bank of England decision today

At 12:00 today we will have the latest Bank of England decision on Interest rates. We expect rates to remain on hold at 0.5%. What is interesting is that the members of the Bank of England's Monetary Policy Committee (MPC) seem have a lack of consensus on how to move forwards. Most vote for no change, but in recent months some have voted for an increase and others pushing for another round of Quantitative Easing.

This indecision is unhelpful for the pound and is causing some volatility. We will have to wait 2 weeks for the minutes of today's meeting to see who voted for what. There is a very small outside chance more QE will be announced today. The markets don't expect it though, so if it were to happen expect the pound to fall sharply.

Other important data today

The European Central Bank publishes a monthly report that contains a detailed analysis of the prevailing economic situation and the risks to price stability. It also provides articles on a wide range of topics related to the tasks of the ECB. The Euro is volatile at the moment so markets will look for any comments designed to calm sentiment towards the single currency. If so then the Euro could strengthen and GBP/EUR rates could drop.

From the UK, we have Trade balance figures.This is a balance between exports and imports of goods. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the Sterling. If a steady demand in exchange for UK exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the GBP. If demand is low then the pound may fall.

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