Market News Detail

September market commentary

Sterling Overview

It is fair to say recent market events have completely overshadowed economic data releases. It all started with the failure of Lehman Brothers and the Fed having to prop up insurance giant AIG. Then HBOS, the UK's largest mortgage lender was forced to be bought by Lloyds TSB following aggressive short selling of HBOS shares. Subsequently market regulators around the world (including the UK's FSA) banned short selling in order to calm equity markets and restore confidence in the banking sector. Goldman Sachs, the most prestigious investment bank has relinquished its investment banking status in order to be able to apply for emergency funding from the Fed, should the need arise. To round off an historic month US congress did not pass the $700bn rescue plan for the financial sector although are working on a solution. 

Given what has been going on sterling has held up rather well. Although UK GDP for Q2 showed no growth, many economists expected to see a contraction. Whilst the housing and mortgage markets still disappoint, the retail sector remains surprisingly buoyant. Tesco CEO Sir Terry Leahy is pleased with performance so far this year and has announced that Tesco is considering offering mortgages. 

To summarise the credit crunch is probably worse now than when it began last year. However, banks are now crystallising their exposure, which in our view can only be good news as confidence should return thus stimulating lending between them. For a more detailed opinion please contact your Currency Dealer directly. 

GBPEUR

The ECB meet to discuss interest rates on Thursday amid signs of weakening growth. Despite intensifying financial stresses with the recent nationalisation of a number of European banks including Fortis Bank, high inflation is still an issue so analysts are not expecting to see a cut in interest rates. With the credit crunch finally impacting we could begin to see the euro weaken. 

GBPUSD (Cable)

With all eyes on bank failures, bailout of AIG and the much publicised $700bn rescue there has not been much reporting on the real economy. However data released last week indicates a fall in Q3 GDP with business investment and housing markets registering weak demand. Furthermore a rise in unemployment suggests the labour market is also darkening. With this in mind some analysts are predicting the Fed will cut interest rates as soon as October, which could undermine recent dollar strength. 

GBPCAD (Loonie)

Ongoing turmoil in financial markets has given the Canadian dollar a boost as oil prices recover from sharp falls. Close proximity to the US where trade growth has been stronger than expected has also assisted the dollar to reach near term highs against sterling.  

GBPZAR (South African rand)

The central bank in South Africa kept interest rates on hold at 12% although the inflation outlook has deteriorated with headline CPI rising above 13%. As you will know the rand is a volatile currency and given inflationary pressures we are likely to see this volatility continue. 

GBPAUD (Australian dollar)

The RBA cut interest rates for the first time since 2001 by 25bps from 7.25% to 7% as Q2 growth slowed to just 0.3%. Since then the dollar has struggled and is the worst performing of all G10 currencies against the yen. 

GBPNZD (New Zealand dollar)

Earlier in September the New Zealand central bank surprised markets by cutting interest rates 50 basis points to 7.50 rather than 25 bps. Immediately the dollar weakened significantly, although since then these losses have been recovered and the dollar is currently enjoying better times against sterling. 

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.