The Pound began to recover this morning as revised second quarter GDP figures were confirmed at the expected 1.2 percent. This news was neatly pre-empted by a positive report about the UK’s budget cutting plans by the International Monetary Fund (IMF).
Sterling was trading at the mid market rate of 1.5823 against the US Dollar and 1.1790 against the Euro at 10am this morning.
Pound Sterling – UK Markets
The revised second quarter GDP figures coming in on target at 1.2 percent has had an instant impact in the currency markets with Sterling picking up against other major currencies.
Markets may have been in the right frame of mind with the IMF report giving a positive reflection of the coalition’s budget cutting plans. The IMF travel to London every year to conduct an economic health check. The report said that the UK economy is improving and that the impending spending cuts are ‘essential’ and will support ‘a balanced recovery’. In particular the report pointed out that ‘unemployment has stabilised and financial sector health has improved’. The IMF predicted growth of 2 percent in 2011 rising to 2.5 percent in the medium term – this marks a small downwards revision from an earlier forecast of 2.1 percent growth in 2011.
News has also emerged on the UK export market to indicate that exports rose 4.9 percent in the second quarter of 2010. This will certainly have been helped along by a weaker Pound.
Charlie Bean, the Deputy Governor at The Bank of England, is encouraging UK savers to spend and ‘eat into’ their reserve capital now to help them during the times of record low interest rates.
US Dollar – US Markets
The US Dollar had made some small gains against the Pound and Euro as investors speculated on the news that the Federal Reserve was considering a small-scale bond buying programme, although has begun to lose out to the Pound’s upwards movement this morning.
Consumer confidence figures will be important today with September’s figure expected to drop back from 53.5 in August to 52.1. The Richmond Fed Manufacturing Index (measuring current activity in the manufacturing sector) is also due out expected to show a decline reading.
Euro – European Markets
The Euro has lost some strength since yesterday against the Pound and the US Dollar. Although news from Germany on consumer confidence has shown an upwards reading, market attention may be re-focusing back to European debt issues as speculation surrounding Ireland’s slowing economy continues. Moody’s rating agency have downgraded Anglo Irish Bank’s lower debt grade down three notches to BAA3 from A3, now just one notch above junk status.
Markets are therefore likely to closely watch today’s Spanish three and six month T-Bill auctions to see how risk appetite is playing out in respect to Europe prior to the Spanish and French budget presentations for 2011 later this week.
Other Currencies – Highlights
Swings in the Brazilian Real are declining to a two year low ahead of presidential elections as The Central Bank of Brazil increases US Dollar purchasing in order to offset a surge in Brazilian investment. The Brazilian Finance Minister Guido Mantega has described similar action of several Governments with nations reliant on their export trade as a global ‘currency war’. He has said that Brazil will not allow the Real to appreciate excessively when other countries are intervening to weaken their own currencies.
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