Thursday, 6 January 2011

Sterling gains vs Euro but falls vs US Dollar

6th January 2011
Good morning. Sterling fell vs the US Dollar yesterday after better than expected construction data in the US. Against the Euro, Sterling rose through the €1.18 barrier. Rates at 08:30am this morning are as follows:




  • GBP/EUR 1.1831
  • GBP/USD 1.5542
  • GBP/AUD 1.5546
  • GBP/NZD 2.0458
  • GBP/CAD 1.5428
  • GBP/CHF 1.5013
  • GBP/ZAR 10.437
  • GBP/JPY 129.01
  • GBP/HUF 325.78
  • EUR/USD 1.3132

Pound falls vs US Dollar

Yesterday data showed that companies in the USA were hiring at a much faster pace than expected. Also pushing Sterling lower were figures showing activity in the UK construction sector contracted last month.

The jobs report brightened the outlook for the U.S. economy, while a monthly construction index suggested Britain's economy was on shaky ground and backed expectations that domestic interest rates are likely to remain on hold despite sticky inflation. This caused GBP/USD to fall.

Sterling rises against Euro

Traders noted steady buying of the pound earlier by Middle Eastern and Asian central banks as the reason for the pounds gain. This demand for Sterling helped it gain against the Euro, and rates have risen through the €1.18 barrier, presenting much better rates for those that need to buy Euros.

The euro was also weighed down by reports that the Swiss National Bank has stopped accepting Irish government bonds as collateral in its money market operations. This reinforced a view that the EU's struggle with rising debt and borrowing costs will continue in 2011. This could keep the Euro weak and help push GBP/EUR rates up.

While euro zone policymakers were struggling to balance budgets and convince markets that they are serious about tackling the debt crisis, Britain has already kicked off fiscal austerity measures which are aimed to keep debt under control.

"With the UK economy continuing to show resilience and inflation pressures lingering, sterling should continue to benefit from more evidence that its rate advantage over dollar and euro is growing," Valentin Marinov, currency strategist at Citi wrote in a note.

Today's Economic Data

Today we have Purchasing Managers Index from the UK. Usually a high figure would cause the pound to gain, but given the BoE have said interest rates will stay low for some time, this may not be the case.

From the EU we see Retail Sales, Consumer confidence and Industrial Confidence, all of which will give the markets an idea how the Eurozone economy is faring as we enter the New Year. Jobless data from the USA rounds off the day.

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