Market News Detail

Foreign exchange market overview

Sterling Overview

As expected, the Bank of England left interest rates on hold this week and we will have to wait two weeks to find out how they voted and whether the committee remained split on their decision.  Last month seven of the nine members voted to keep rates on hold with one member voting for a cut and one for a hike.  Mervyn King, Governor of the Bank of England has also spoken about the current climate of the UK economy and many believe the next rate move may be down.  UK house prices have also received their first double-digit annual fall since 1990, with the Nationwide reporting a 10.5% decline and Halifax a 12% decline.  The annual drop came after Nationwide reported a 1.9% drop for August alone.  The average home now costs £164,654 which is more than £19,000 cheaper than in the same month last year.  Elsewhere, Alastair Darling, Chancellor of the Exchequer was quoted in the Guardian recently as saying the economic downturn could potentially be the worst for 60 years. Sterling has struggled against most major currencies and we expect the pound to remain under pressure.  It seems there is little economic data to provide sterling with the support that it needs.  Our view remains the same and we believe the pound will find it difficult to make significant gains against other major currencies, although for more information please contact your Currency Dealer.  

GBPEUR

Following Mervyn King’s statement two weeks ago, a series of negative data release and Alastair Darling’s recent comments, GBPEUR hit a new all-time low.  The ECB kept interest rates on hold again at 4.25% and data released from the eurozone suggest cracks are beginning to appear in the economy.  We expect GBPEUR to remain range-bound in the short-term. 

GBPUSD (Cable)

Sterling has recently hit a 24 month low against the dollar providing a fantastic opportunity for those selling dollars and buying sterling.  The pound hit its lowest level since July 2006 and we expect the pound to remain under pressure.  In the US, the interest rate remains at 2%, and as the economy recovers and grows it is likely we may see the rate increase, which could further strengthen the US currency. 

GBPCAD (Loonie)

The Canadian dollar has capitalized on a weak UK economy and has strengthened considerably against the pound.  The Bank of Canada kept Interest rates at 3% at Augusts’ meeting and is due to meet again on 3^rd September.  Oil prices remain high but have eased again reducing the strength of the Canadian dollar. 

GBPZAR (South African rand)

The South African Reserve bank kept interest rates on hold during August so the base rate remains at 12%, the last move being a 50 basis point hike in June.  The rand like most other currencies has made ground against the pound following a series of weak data releases in the UK. 

GBPAUD (Australian dollar)

The Reserve Bank of Australia have not moved interest rates since March this year and again in August chose to keep them at 7.25%.  The Aussie dollar has been volatile throughout August providing some good buying and selling opportunities. 

GBPNZD (New Zealand dollar)

The central bank will meet again on the 16^th September and no major figures are expected to be published so will be influenced largely by external factors in the meantime.  The Kiwi dollar is influenced by the price of commodities and carry trades, so we expect it to remain volatile in the short-term. 

We hope this newsletter has been useful and for further information please contact your Pure FX Currency Dealer on +44 (0) 1494 671800 

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