Sterling up vs USD and EUR despite weak data

Friday 15th July 2011
Good morning. Sterling has surprised many in the markets this week, recovering well against the Euro and US Dollar, despite weak data showing the economy is slow. We are at a 3 week high vs the US Dollar, and the debt problems in Europe means the Euro is cheaper to purchase also. At 08:30am this morning rates are as follows:

GBP/EUR 1.1423
GBP/USD 1.6121
GBP/AUD 1.5138
GBP/NZD 1.9197
GBP/CAD 1.5492
GBP/ZAR 11.111
GBP/JPY 127.63
GBP/DKK 8.5161
GBP/NOK 8.9720
• EUR/USD 1.4109

Sterling up against US Dollar and Euro

Sterling's bounce has primarily been on the back of a bearish outlook for the US Dollar and has had little do with any signs of improvement in the UK economy. In fact most analysts had expected the pound to fall further given all the poor data we have seen of late, however with the US Dollar weak, and the Euro facing problems due to debt issues, Sterling has benefited as analysts sought out the Pound as an alternative investment.

Data on Wednesday showed a sharp rise in the number of Britons claiming unemployment benefit, adding to concerns that stale growth prospects may prompt more Bank of England policymakers to call for additional policy easing. "The sceptre of more quantitative easing in the UK is hanging over the pound and is a big weakening effect," said Kathleen Brooks, research director at FOREX.com.

She added concerns about high debt levels, the hit to the economy from harsh austerity measures and UK exports failing to benefit significantly from a weak currency would keep sterling weak, particularly against currencies other than the dollar.

So despite these gains, most analysts are still saying Sterling may drop again due to all the negative economic data we are seeing. If you need to buy Euros you may wish to take advantage of the current rates with a Forward contract, which allows you to fix today's rates for up to 2 years in the future.

Today's Data

Most data is US based – inflation data and industrial production are the main releases of note. There are also trade balance figures from the EU. The most important event today though is the EU bank stress tests, which could cause weakness in the Euro.

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