Pound rallies against US Dollar

The Pound has made strong gains on the US Dollar on signs that that the UK recovery is progressing tentatively. Inflation levels came in line with economists’ forecasts yesterday at 3.2 percent from 3.4 percent. Although this is an improvement it is still above the targeted level meaning that an interest rate increase is unlikely to come in the near future but is definitely on the horizon.

Euro – European Markets

The Euro made strong gains on the US Dollar and Sterling in the second half of Tuesday, but has started to loose these gains on Sterling overnight and this morning. The Euro seems to have been largely unaffected by Moody’s rating downgrade of Portugal yesterday, with markets reacting instead to good demand for Greece’s bill auction. China also agreed to buy 400 million Euros worth of Spanish ten year bonds yesterday. Other positive news came from rising share prices and foreign sales at German companies Bayerische Motoren Werke AG and Siemans AG, with German unemployment rates also at record lows.

Pound Sterling - UK markets

At 9.20am this morning the Pound had reached 1.5234 against the US Dollar ending a three day drop and has risen in total against twelve of its major counterparts. The high UK inflation figures have added pressure to the Bank of England to raise interest rates to bring inflation down to their target level of 2 percent – any raise in interest rates will be a strong sign to markets that the UK recovery is gathering full momentum. This sentiment was reiterated by Andrew Sentence, the Bank of England policy maker who recently voted in favour of an interest rate rise. At a speech in Reading he reiterated his stance but qualified that no ‘sudden lurch’ should occur and that stimulus should be removed gradually. UK investor confidence will also have been cultivated by George Osborne’s moves to ensure that one of the new European Central Bank watchdog agencies will be based in London rather than Frankfurt. The Treasury have suggested the move is a vote of confidence for the UK as a seat of financial power. Unemployment and jobless claims data have been released this morning. The unemployment rate drop has been the largest in almost four years likely to help the Pound’s upwards momentum.

US Dollar – US Markets

The US economy is in the spotlight for unexpected news regarding the trade deficit levels which widened in May to its highest levels since November 2008 despite being projected to narrow. The gain in imports has far outgrown exports as US companies imported more automobiles and consumer goods causing the gap to swell to 42.3 billion Dollars. U.S. President Barack Obama has made export growth a key economic policy initiative. The Dollar has lost out against both the Euro and Sterling in the past twenty four hours.

Other Currencies – Highlights

Asian currencies have risen after a government report showed that Singapore’s GDP expanded at a 26 percent annualized pace in the second quarter with the economy accelerating at a record 18.1 percent in the first half of the year. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.