Market News Detail

How has Sterling performed in foreign currency market

Let me start by wishing all our readers the very best for 2010.  As usual the festive season brought about higher volatility between the Christmas and New Year period although the range was limited when compared to that of 2008.

The final figure for Q3 GDP was released in December and unfortunately for sterling the UK economy contracted -0.2% causing the pound to weaken on the day.  The market expectation had been for a contraction of -0.1%.  Nevertheless, the figure was much better than originally forecast in October when analysts predicted a -0.4% contraction for the same period.  The hope now is that the UK will finally exit recession when the Q4 GDP estimate is released later this month although even this figure will not be confirmed until March and runs a risk of being revised down should it initially show growth.  This leaves the UK as the last remaining G20 nation still in recession, a fact that is certainly making it difficult for sterling to make ground against other major currencies.

More recently economic data has been more positive in the form of manufacturing PMI hitting a 25 month high, along with an increase in mortgage approvals and mortgage lending.  The Bank of England met yesterday although as expected interest rates remained unchanged at 0.5% and it is unlikely we will see change any time soon.

The UK was recently singled out in an article in the Wall St Journal as having the worst fiscal position of all industrialised nations, noting that the UK does not have an implicit or explicit guarantee for the high levels of debt, should things take a turn form the worse.  Other articles published in the Times and Telegraph have also highlighted the UK's weak position again undermining the value of the pound.

Our view is that sterling will remain range-bound in the short-term although economic data releases over the next few weeks should give more of an idea of what to expect on 26^th Jan when Q4 GDP figures are released.  For a more in depth view or discussion about a particular currency pair please call your Pure FX dealer directly.

GBPEUR

This currency pair has struggled to make sizeable headway in either direction recently.  Huge problems mounted in Greece when George Papaconstantinou, the new Finance Minister, said that the previous Government had underestimated the budget deficit and that it now ran at 12.7 per cent of GDP. That gap between tax receipts and government spending is more than four times the EU's 3 per cent limit. This lead to protests mid-December causing the euro to weaken although it was soon sterling's turn to suffer as various newspaper articles undermined the strength of the UK economy causing the pound to give up those small gains.  Unfortunately, our view is that GBPEUR is likely to retain this stance in the short-term.

GBPUSD (Cable)

Analysts had been looking at the possibility of a hike in interest rates as early as April but Fed representative Elizabeth Duke has reiterated the Fed's position to leave interest rates unchanged for a prolonged period.  Recent trading range has been around 1.60 with neither the pound nor US dollar gaining enough support to break outside of this.

GBPCAD (Loonie)

Canada's GDP figures grew by +0.2% in October, the first figures we have seen from a major economy for Q4 although there was disappointment as analysts had forecast +0.3% growth.  Fortunately for the Canadian dollar investors were more interested in Canada's commodity exports enabling the loonie to make gains.

GBPZAR

As with most countries South African statistics have been few and far between recently, particularly over the Christmas period although that didn't seem to matter as the rand, like the Aussie, Kiwi and Canadian dollar has rallied on the back of rising commodity prices and a growing stock market.

GBPAUD

Other than a contraction in manufacturing activity for the first time in 5 months, recent economic data has been positive in Australia.   New motor vehicle sales improved by +5.5% in November and were up by a useful +15.8% on the year and like other commodity currencies the Aussie dollar has made big gains on the back of rising commodity prices.

GBPNZD (New Zealand dollar)

There was disappointment about New Zealand's economic performance in the third quarter. At +0.2% it was clearly better than Britain's -0.2% shrinkage but analysts had forecast an expansion of twice that much so the Kiwi dollar was temporarily downcast.

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.