With a relatively light week on the data front, market attention was focussed firmly on international events as the G20 met in Pittsburgh and the Federal Reserve interest rate decision was announced. Sterling exchange rates have continued to slide, falling to its lowest level in five months against the euro and US dollar.

In the UK this week economic data has been light, with the main release of note being the minutes from the last MPC meeting. The committee unanimously voted to keep interest rates on hold at 0.5% and maintain current levels of QE and this consensus allowed sterling to make small gains against its currency partners.

The rest of the week however, has been negative for sterling as pressure on the pound has forced exchange rates to around USD1.60 and EUR1.09. This is largely due to the Federal Reserve speech, which highlighted the gradual nature of the US recovery and comments from Mervyn King, that a weak pound is supporting the UK export sector.

US markets have been the epicentre of market attention this week, with both the Fed decision and the G20 meeting expected to have a major impact on currency exchange rates this week. The Fed opted to leave rates but maintain economic stimulus, while the accompanying speech highlighted the gradual nature of economic recovery.
The G20 called for greater cooperation internationally and emerging nations are expected to take a greater role in global recovery. At present the pace of growth in emerging nations outstrips that of the UK, EU and US and they are expected to be instrumental in global recovery. US home prices fell 2.7% on the month and this led to a bout of risk aversion due to fear over the sustainability of economic recovery. The US dollar is currently trading in the region of 0.62 against the pound and 0.68 against the euro.

The eurozone has also been relatively quiet this week, with exchange rates remaining over 3% high against the US dollar. The German IFO business climate reached its highest level since September and industrial new orders rose by 2.6% in the region. Manufacturing PMIs however, were weaker than expected and this triggered fears over the sustainability of the recent market rally. The euro remains in the region of 1.47 against the US dollar and 0.91 against the pound.

Elsewhere, the New Zealand dollar strengthened as New Zealand emerged from recession. This ends six consecutive quarters of contraction and surprised markets to the upside, allowing the kiwi to reach a 13-month high. The South African rand strengthened on the news that inflation is falling, and the pound remains around 30% higher against the US dollar than this time last year.

So while the week has been relatively quiet for data, we have still seen major currency volatility with sterling sliding over 1% against the US dollar and euro. Next week brings UK GDP data for the third quarter and this could confirm that the UK has emerged from recession. Whatever the outcome, more volatility is likely to ensure so ensure you get yourself registered with Currency Solutions to make the most of your currency transfer. We provide bank-beating exchange rates and a personal service for all your currency requirements.

Have a good weekend.