Is England fit for recovery?
The unexpected news that the UK could be on the road to recovery boosted sterling exchange rates this week as confidence drove risk appetite. The US dollar was sent to the lower end of ranges and markets have been occupied with a glut of important economic data, including interest rate decisions from the Bank of England and European Central Bank.
In the UK, manufacturing, services and the property sector all reported unexpectedly healthy figures this week, with production expanding and house prices rising for the first time since recession began. The confidence this engendered in the pound drove sterling exchange rates to 1.69 against the US dollar and 1.18 against the euro, as the pound broke out of recent ranges amid market optimism.
The Bank of England has also decided to leave interest rates on hold at 0.5% for the fifth consecutive month, while pumping another GPB50 billion into the economy. The MPC is now utilizing the full extent of the funds approved by the Treasury to stimulate the UK economy and sterling exchange rates dipped slightly following the decision.
The US dollar has remained in low trading ranges this week due to the rally in market confidence. Following positive GDP figures last Friday where the economy contracted by 1%, the US economy has continued to show modest signs of improvement. This week construction and manufacturing sectors have reported minor gains. Personal consumption figures were down more than expected, although this failed to dent risk appetite as positive news in Europe and Asia kept the US dollar confined to low ranges.
Euro exchange rates climbed over 1% against the US dollar this week, rising to around 1.44 amid the upturn in global growth. The European producer price index rose 0.3% this month, however retail sales fell by -0.2% and France's largest bank Societe Generale, reported a 52% profit drop in the second quarter. The ECB also voted to leave interest rates on hold at 1% with President Trichet confident that the rate is 'appropriate' for continued growth in 2010.
In Eastern Europe the Czech central bank trimmed the base rate to 1.25%, with economists noting the cut is a 'safety measure' to ensure further easing prevent the appreciation of the koruna. The Czech economy is on track for the worst contraction in more than a decade. The Polish government decided to drop euro adoption plans for 2012 in the interests of greater economic stability. While Poland has avoided recession thus far, the zloty remains under pressure from falling revenue and a higher budget deficit.
So while we have seen a return to extreme currency volatility, this time it has been in favour of the pound and euro against the US dollar. Sterling rose to its highest level in 10 months against the US dollar, while the Australian and Kiwi currencies also touched on 12-month highs amid the improved market confidence.
If you need to transfer currency, taking advantage of these spikes in the currency market can make a significant difference to the amount you end up with. To ensure you capitalise on market volatility, speak to your broker about your currency requirements and they will call you at the best time to trade.
Have a good weekend.