Pound Drops Against Stubborn Euro

After a strong performance against the Euro last week, Sterling is now falling against the single currency. With policies coming under severe attack within the UK, the local currency really is starting to wobble. However, with rates still relatively strong, now is the time to speak to your broker to discuss the markets.

Euro – European Markets

The EUR/USD rate at GMT 12.30 was 1.2653. Global experts are maintaining their focus on the ‘stress tests’ that 65% of the European banking sector are due to undertake. The tests are being put in place to determine how banks would cope with “economic and market shocks”. Although there is a risk that these tests could prove to be potential stumbling blocks for the banks, experts are hoping that results will be as positive as those carried out in the US during May 2009. The most hopeful outcome would be a mark down on the value of Greek government debt by approximately 16% and Spanish bonds by 3%. However, the tests fail to take into consideration defaults from a sovereign nation that are still a possibility. More unexpectedly, German factory orders fell yesterday as demand for goods dropped across the Eurozone. Yesterday it was believed that a weaker Euro would support the export industry, but figures reveal a 0.3% decline in export orders. The ECB has also released their interest rates and as expected these rates have been maintained at 1.0%.

Pound Sterling - UK markets

The GBP/EUR rate at GMT 12.30 was 1.1969 and the GBP/USD rate stood at 1.5147. The Bank of England (BoE) today released interest rate figures and as expected rates were kept at 0.5%. However, this decision has come under attack by Monetary Policy Committee member Andrew Sentence who, back on June 10 this year spelled out the dangers of inflation and made the first serious push to raise interest rates from the record low. Inflation levels are still above the government’s 3% upper level and the UK economy is still very much in ‘tentative’ recovery. The International Monetary Fund has today lowered its forecast for the UK from expansion rates of 1.3% to 1.2% in 2010 and 2.5% to 2.1% in 2011.

US Dollar – US Markets

A surge on Wall Street yesterday made risky equities much more attractive. The Dollar fell against both Sterling and the Euro late on Wednesday. The lackluster stock markets have caused investors to move towards the safety of the lower yielding US Dollar and Yen. Jobless claims in the US are expected to fall to around 460k from last weeks 472k which appears to show that the downward trends have stalled. Furthermore, chain store sales figures (Wal-Mart not included) expected to be released will reveal whether the ongoing revival of risk shown yesterday are as positive as the market believes they are.

Other Currencies – Highlights

A surge in US consumer spending has helped shore up demand for riskier assets. Asian currencies appear to be benefiting the most from this with South Korea’s Won and the Malaysian Ringgit leading the way. The South Korean currency climbed the most this month whilst reports coming out of Malaysia revealed industrial output was on the up and that a meeting was set that may lead to the third interest rate increase of the year. Ongoing positivity in Australia has revealed that Chinese growth is currently benefiting their economy whilst Canada may indeed struggle due to the slowing economic growth figures in the US. Australia exceeded expectations as the number of people in work increased three times more than was expected by experts in June which only goes to suggest that the Reserve Bank of Australia (RBA) will continue to increase interest rates. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.