Sterling Overview

Okay I am determined not to turn this currency commentary into political report. However we cannot hide from the fact that as a consequence of a looming general election (latest June) the value of sterling has been under pressure. Why? Well with political uncertainty comes economic uncertainty.

Last week the Chancellor announced his budget, which rather unsurprisingly was not too far away from what the market was expecting and the Chancellor managed to (on initial response at least) obey the budget rule of “do no harm”. Despite the financial market being more or less universally negative about the budget, since last week sterling gained against most currencies albeit not by too much. As has the FTSE100. This is probably down to a number of reasons including the 2009/10 budget deficit being lower at £167bn vs. £178bn estimated in last years pre-budget report.

Away from politics (hooray) UK economic data has broadly speaking been in-line with market expectations. If anything slightly ahead of forecast. For example unemployment rates are falling, retail sales jumped by 2.1% in February, and manufacturing / industrial production figures show signs of improvement.

So what all this means is for the medium term (until the election) sterling is likely to remain under pressure, however if economic data continues to improve then we would like to think that sterling will begin to recover in value. As always please contact your Currency Dealer for more information.

GBPEUR

For the time being at least the euro has managed to fend off the negative sentiment after a rescue package has been announced for Greece. Having said that the euro remains weak against the US Dollar, and with question marks still over Portugal, Italy and Spain there is potential for the euro to remain under pressure.

GBPUSD (Cable)

The US dollar continues to be in the ascendancy recently hitting a 10 month high against the euro and sterling. Whilst the US Federal Reserve maintains the fact interest rates will remain low for an extended period of time, economic activity is improving and the situation in Greece, along with UK elections is keeping the euro and pound low vs. the dollar.

GBPCAD (Loonie)

As the global economy recovers the demand for commodities increases, as such the Canadian dollar has gained significantly against many currencies including sterling. With this trend set to continue we expect the pound to struggle against the loonie for the medium term.

GBPAUD

Like the Canadian dollar, the Australian dollar has made large gains against sterling recently. However retail sales missed target as did building approvals. The question now is given this data whether the RBA will continue with its tightening bias and raise interest rates again next week.

GBPZAR

Despite inflation being more or less in line with expectations The Reserve Bank of South Africa recently reduced interest rates by 50 basis points to 6.5%. This was not expected and as such might offer sterling an opportunity to begin to recover some of the recent losses against the rand.

GBPNZD (New Zealand dollar)

Despite a call from the IMF (International Monetary Fund) for the New Zealand government to make deeper spending cuts in order to reduce the budget deficit, sterling has been unable to make any substantial gains against the kiwi dollar in March.

We hope this newsletter has been useful and for further information please contact your Pure FX Currency Dealer on +44 (0) 1494 671800. Nothing in the newsletter should be construed as advice or guidance as to when to buy or sell currency.

This entry was posted on Wednesday, May 26th, 2010 at 12:04 pm and is filed under Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.