Market News Detail

Pound hits five month high in currency exchange markets

Sterling Overview

Whilst the Christmas champagne may be a little flat by now, we learned a couple of weeks ago that the UK is finally out of recession, which might be an excuse to open a bottle? After six consecutive quarters of negative growth (the longest period of negative growth since records began in 1955) the UK economy grew by 0.1% between October and December 2009. 

Only 0.1% I here you ask, which funnily enough is the same response the markets gave the data release, lukewarm at best. This resulted in the pound falling against most currencies on that particular day. However despite initial disappointment since then sterling has recovered most of those loses on the back of relatively positive economic data including better than expected employment figures coupled with rising exports. Also, inflation data appears inline with Bank of England expectations. Furthermore the ONS (Office for National Statistics) has factored in a disappointing December so later in February when the second GDP estimate is released it could be revised up, which is what happened last quarter. 

Clearly we must be mindful that the currency exchange markets are notoriously difficult to forecast, however the view at Pure FX hasn’t changed much in the sense that at current exchange rates we feel sterling is under valued, in particular against the euro and commodity currencies like the Canadian and Australian dollar. As always for a more detailed opinion please contact your Currency Dealer directly on 01494 671800. 

GBPEUR

Since the onset of fiscal problems in Greece (see our last report) the euro has lost value against major currencies including sterling. The pound reached a 5 month high in January against the euro although could not hold this level. With concerns about Portugal, as well as the potential for the ECB to have to bail out Greece, we could see the euro continue to struggle against many currencies, including sterling? 

GBPUSD (Cable)

As you know the US exited recession long before the UK and the most recent quarterly figures of economic growth were revised up from a consensus of 4% to 5.7% annualised growth. A large enough difference to shift momentum towards US dollar strength. The net result has been the pound dropping below 1.60 for the first time in a few weeks. 

GBPCAD (Loonie)

In January we saw the Canadian dollar fall in value after disappointing Q4 GDP data along with a drop in consumer confidence after monthly RBC consumer outlook fell into negative territory. However renewed confidence on the global recovery has increased commodity prices and as a consequence the loonie has benefitted from these rising prices. 

GBPAUD

The Reserve Bank of Australia (RBA) has surprised the market by keeping interest rates at 3.75% when the market was expecting an increase of 25bps to 4%. Immediately after the announcement AUD fell against most currencies as analysts try to understand what the RBA know that they don’t as a rate hike was priced in. 

GBPZAR

Short term focus will remain on whether the Reserve Bank of South Africa has made the correct decision to keep interest rates at 7%. The market had expected rates to be held although some participants were hoping for a cut. The Reserve Bank have not ruled out the possibility of cutting rates at a later date, which might weigh down the rand in the short term. 

GBPNZD (New Zealand dollar)

According the New Zealand Finance Minister Bill English, the recovery in New Zealand will be a little bit patchy with some industry sectors performing better than others. In his build up to the May budget he wants to move the NZ economy away from consumerism towards exports. This is a similar strategy to BoE Mervyn King who is keen for sterling to remain low in order to boost exports. With this in mind will the kiwi dollar remain high? 

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.