Sterling has begun the week soaring

The Pound has reached levels of 1.21 against the Euro and 1.50 against the Dollar. Last week’s emergency budget was received very well by markets. The new Chancellor’s spending cutting measures and tax rises have been interpreted as an appropriate way for the UK to tackle its deficit which has shown itself in the Pound’s strong gains. The Sterling rate against both the Euro and the US Dollar are currently very strong as further positive news such as an increase in house prices has boosted the Pound’s upwards momentum. Budget cutting was also the focus of the G20 summit this weekend in Toronto. The world’s most advanced economies agreed that they would all aim to halve their deficits by 2013. Whilst Germany has been pushing for budget cutting in Eurozone nations, the US has previously been cautious about this approach instead preferring to maintain stimulus in the economy via spending and the pace of the budget cuts was the focus of the talks. The proposal for a worldwide levy on banks was dropped with the decision being that nations can individually decide whether to pursue this. One of the most important G20 matters for currency movements is China’s pledge to drop its policy of having Chinese currencies pegged to the US Dollar. This policy has previously meant that China’s currency will not appreciate so that its exports become too expensive but has negatively affected the exports of other nations in particular the US who have a large import-export deficit. The proposed change of policy by China should see the Yuan begin to gain value. It is also likely to help the US recovery if US exports increase which in the long term will help strengthen the US Dollar. In the short term however the US Dollar has made losses over the last few weeks as a result of various signs that the US recovery has begun to slow down. House prices and levels of unemployment have come in lower than economists expected. Although the Dollar typically benefits from Euro weakness which still exists, investors have been choosing other safe haven currencies as opposed to the US Dollar such as the Japanese Yen. US Unemployment data that comes out on Friday this week will be important. Other data this week which may affect currency movements are the UK GDP figures on Wednesday and European unemployment levels on Friday. To take advantage of the current strong Sterling rates, or discuss how to protect yourself from currency movements call us on +44 (0)20 7740 0000.