Pound gains as we enter a new month
Sterling brushed off last weeks decline and bounced back yesterday against the Euro and US Dollar. This is mainly due to month end flows and continued problems in the middle east causing Oil prices to rise and investors to flock to safe haven currencies.
Analysts said sterling could be vulnerable though if poor data comes in this week. The main data is purchasing managers' surveys on the manufacturing and services sector, which if they come in weak it could dent expectations of a rise in UK interest rates within months.
"Sterling can be quite sensitive to month-end portfolio rebalancing and hedge fund adjustment, given the number of portfolios that are run from London or are sterling-based," said Ian Stannard, currency strategist at BNP Paribas.
For the last few months Sterling has been supported by expectations the Bank of England will raise interest rates but the bank's decision now seems to hang on a firming up of economic recovery in the first quarter of this year. So, we need better UK data to support the case for a rate hike, and thus we expect the pound to gain should we get better data this week. If however data is worse than expected then Sterling could start dropping again.
The new month starts today and the first data of note is an Interest Rate decision from Australia and Canada, although we expect no change from either.
From the UK we see the latest House prices from Nationwide, indicating how this sector is performing. We also have UK Mortgage approvals today.
From the Eurozone watch for German unemployment and inflation data that may cause GBP/EUR volatility.
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