Pound Climbs Once More Following Weeks of Depreciation

Sterling experienced its most significant rise in three months against a basket of other currencies following the unexpected growth shown in yesterday’s third quarter GDP figures. This has brought a long-awaited boost for the currency which has undergone severe depreciation over the last two months. This was further helped as ratings agency Standard and Poor’s upgraded the outlook for the UK’s AAA credit rating from “negative” to “stable” in light of yesterday’s figures. It is also thought that the GDP figures which soared above forecasts will reduce the chances that the Government will resort to quantitative easing – something that has been overshadowing Sterling for some time.

Pound Sterling – UK Markets

On the back of the GDP figures, Sterling began to reverse October’s losses against the Euro yesterday to close at €1.1404, a tremendous gain of 1.8% on the day. In early European trading, the Pound is still sitting strongly currently trading at €1.1445 (at 07:26 GMT). Sterling also made gains against the US Dollar, peaking at $1.59. Currently, £1 will buy $1.5775 (at 07:26 GMT). Better than expected third quarter data gave a lift to Sterling, although how long this will last remains to be seen. Already some are debating that the positive figures should be attributed mainly to construction sector activity which was delayed by bad weather therefore bringing down the figures earlier in the year. Concerns also remain regarding the potential negative impact of UK government moves to tackle public debt. Some analysts believe that the cuts will cause the economy to contract particularly with regards to an expected spike in unemployment.

US Dollar – US Markets

The Dollar saw a rare day of sustained gains against the Yen following better than expected consumer confidence figures, closing at ¥81.3039. The trend has continued into early European trading and is currently trading at ¥ 81.8900 at 07:40 GMT. The Dollar also rose to a one week high against the Euro. US house prices saw a fall of 0.3% in August according to the Case-Shiller index which takes the pulse in twenty major US cities. The figure uses a rolling three month average and probably reflects the effect of the ending of tax concessions back in April. Even so, the data was worse than had been expected with US house prices currently 29% below the peak value seen in May 2006. However, other housing data revealed yesterday and on Monday has revealed some improvements – the housing price index for example which provides an estimated value on housing market conditions has increased. Markets will be mainly be waiting for Friday this week which sees the significant release of US third quarter GDP figures. Whether they can bring a similar surprise to those in the UK this week remains to be seen and will no doubt have an impact on the crucial FOMC decision on stimulus next week.

Euro – European Markets

The Euro lost ground against the Dollar yesterday to close down by 0.8% at $1.3912. The current exchange rate sees €1 buying $1.3792 at 07:50 GMT. Rules to regulate the European hedge fund business have been finalised by the EU Commission and will be voted on by the European Parliament next month. The Swedish central bank has raised interest rates by 0.25% to 1%. This is the fourth such move since Sweden became the first EU member to raise rates in the aftermath of the global financial crisis in July. The bank cites concerns about inflation and the strength of the Swedish recovery as reasons for the move. The Swedish Kronor closed 1.1% higher against the Euro yesterday with 1 SEK buying 0.109 Euros however this has fallen off again sharply this morning.

Other Currencies – Highlights

Australian inflation data came in lower than expected yesterday causing a 1.6 percent drop against the US Dollar. This has also reduced the likelihood that the central bank will raise interest rates next month. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.