Sterling Awaits Interest Rate Data

The lack of volume flowing through the US yesterday due to the Independence Day holiday allowed investors to focus their attention on the UK. Unfortunately, this day of examination did little to ease concerns over the fragility of the local economy.

Pound Sterling – UK Markets

As of GMT 1000 the GBP/EUR rate was at 1.2049 whilst the GBP/USD was 1.5187. This is likely to be the 16th month in a row that rates are left on hold but a day before the Monetary Policy Committee (MPC) are meeting to discuss interest rates many people are nervous about what the outcome is likely to be. A rise too soon could cripple the countries tentative growth but lack of decisive action could see inflation spiral out of control. Last month MPC member Andrew Spence called for the first increase in rates since August 2008; wanting to take them to 0.75%. Although it is unlikely that a change will happen this month, the minutes of the MPC meeting in 2 weeks time will be very telling. The BCC (British Chambers of Commerce) have stated that they feel growth in retail and services and the reason that manufacturing export is the highest it has been in 4 years is due to the weak Pound. On the other hand, service sector activity figures weakened to a 10 month low in June as business confidence fell dramatically.

US Dollar – US Markets

The ISM non-manufacturing data for June is set to come in around 55, which is a slight drop on last month’s figures of 55.4. With the US Dollar showing signs of nervousness it is definitely worth speaking to your broker about where the safe haven currency is set to go over the coming weeks. However, the USD appears to have dropped over the last 24 hours and as of GMT 1000 the USD/EUR rate was at 0.7937.

Euro – European Markets

Just as we thought there was anything but good news coming out of the Eurozone it appears there could be a silver lining to the relentless storm that has tormented the continent over recent months. Some of the largest investment managers have begun purchasing Spanish debt after signs that the bond crisis could be past its worst. Since June 7th, the Euro has gained 5% on the US Dollar whilst Spanish, Greek and Portuguese bond markets have risen by 3% since last month. This renewed optimism is being taken with extreme caution and the single currency is by no means out of the woods yet. These concerns were reiterated by many experts that still insist that the severity of austerity in the three countries mentioned will eventually dampen growth and lead to deflation, making the debts impossible to pay off.

Other Currencies – Highlights

After yesterdays renewed optimism, Asian currencies including the Won and the Ringgit dropped back today amidst reports that Europe’s service and manufacturing sectors slowed yesterday. This prompted investors to favour the so-called ‘safer bets’ rather than emerging markets. An international slow down does appear to be occurring based on yesterday’s figures and this will hurt Asia as a key driver of the economy is the export industry. The Australian Dollar continued its march onwards today as reports showed that both consumer and business spending were on the up. Furthermore, the RBA stood strong and decided to leave interest rates as they were and gave a strong statement of intent. This positive data meant that the currency outperformed its sixteen major counterparts. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.