Pound Sterling - UK Markets

Sterling exchange rates climbed to a 9-month high against the US dollar yesterday, reaching USD1.70 as investors favoured risk in the market. The pound also rose 0.21 cents against the euro, following news that HSBC and Barclays operated profitably in the first half of 2009. This morning the pound has trimmed gains, but is still trading at the high levels of USD1.69 and EUR1.17.

Positive news from the banking sector and a modest expansion in manufacturing saw sterling begin the week on a positive note. The construction sector PMI this morning also shows an improvement to 47 points in July, indicating the pace of recession is easing and this is also likely to be positive for the pound. The Bank of England meets later in the week to decide whether to expand with their QE policy and this will be of interest to foreign exchange markets.

US Dollar - US Markets

Exchange rates for the US dollar are mixed this morning, falling against the yen, pound and euro, while rising against its other major currency partners. The US dollar is currently trading at 0.58 versus the pound and 0.69 versus the euro.

The upturn in global growth is reducing demand for the US currency at present. Yesterday PMIs from across the UK, Europe, US and China all reporting healthier results in manufacturing sectors leading to speculation that this could pave the way for economic recovery. The US dollar sunk to a 9-month low against the pound amid improved appetite for risk. Personal consumption figures are due in the US today and these are expected to show a 0.4% rise in spending, largely due to higher oil prices.

Euro - European Markets

Euro exchange rates rose over 1% against the US dollar yesterday following more positive sentiment in the eurozone. This morning the euro has trimmed gains, declining slightly against the yen, US dollar and pound while remaining strong against the Australian, Kiwi and Canadian currencies. 

The producer price index for the eurozone has risen 0.3% this month, though fallen -6.6% in the year to June. This is the greatest decline since 1981 as low oil prices and discounting forced manufacturers to keep prices low. Low oil prices are also helping to ease inflationary tendencies. Yesterday's manufacturing data boosted demand for the euro though with an ECB interest rate decision due on Thursday, traders are currently limiting their appetite for risk.

Other Currencies - Highlights

Exchange rates for the Australian dollar have strengthened following the RBA decision to keep interest rates on hold for the fourth consecutive month. The RBA voted to leave interest rates at 3% as they claim risks to the economy are abating due to rising business and consumer confidence. The Australian house price index also rose in the second quarter and AUD could strengthen further with positive US consumption figures.