Tuesday 6th December 2011
Good morning. Sterling rose against the US Dollar yesterday and was up ever so slightly against the Euro, as the Pound tracked a rally in the euro after an agreement between France and Germany on proposals to help solve the euro zone crisis raised confidence in currencies perceived to be higher risk. The pound was also supported by better-than-expected services PMI data. Below you can see how exchange rates moved throughout trading yesterday, and a snapshot of rates as at 08:30m this morning.
• GBP/EUR 1.1685
• GBP/USD 1.5632
• GBP/AUD 1.5300
• GBP/NZD 2.0094
• GBP/CHF 1.4475
• GBP/CAD 1.5890
• GBP/ZAR 12.593
• GBP/JPY 121.52
• GBP/DKK 8.6877
• GBP/NOK 9.0262
• EUR/USD 1.3373
Pound makes slight gains against US Dollar and Euro
As you can see from the above charts, the Pound rose a little against the Euro and US Dollar yesterday, although not by much and the market was generally flat for most of the day. The reasons for the slight gains were the talks in the EU, where France and Germany agreed a series of reforms with regards to the EU debt crisis.
Many in the market think this could be the start to finding a solution to the debt crisis, and this in turn supported riskier currencies. As Sterling is seen as a riskier investment, the increased confidence caused the Pound to rise slightly against the Euro and Dollar, but fell slightly against the Australian Dollar as the antipodean currency is riskier, and so gained more and became more expensive to purchase.
UK Growth falters, giving uncertainty to the direction of Sterling
There were also better than expected PMI figures released yesterday, however despite the improved headline PMI reading, the survey also showed employers shed jobs at the fastest pace in a year, and the majority of market analysts that UK economic growth is faltering. The UK economy looks likely to by either flat or show minimal growth in the last few months of the year.
Further Quantitative Easing could push exchange rates lower
The problem is that signs of weakness in the UK economy will put a damper on the pound as a fragile economy will require the Bank of England to continue buying assets from the market, which would flood the market with the currency. The last time Quantitative Easing was announced Sterling/Euro fell by nearly 3 points, and it's likely the BoE will need to pursue more QE in the coming months, and have hinted as much in recent publications.
Investors and currency speculators of late have been selling the pound for the US Dollar, whenever headlines suggesting policymakers are struggling to make progress in resolving the debt crisis hit risk appetite. This in turn has strengthened the US Dollar and brought GBP/USD rates down in recent weeks
A very quiet today for the UK, with only Retail Sales being released. Canada and Australia have an interest rate decision. Germany releases Factory Order data, and the USA has measures of economic optimism.
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