Sterling; Stagnant but Strong

As if a crystal ball was present in several reports last week, Sterling has picked up against most major currencies. However, with little to no news being released out of the UK, our currencies new found strength comes purely from faltering economies elsewhere in the world. Pound Sterling Whilst BoE governor Mervyn King still justifies the decision to keep interest rates at a record low of 0.5 percent despite inflation gathering pace once again, Chief Economist Spencer Dale’s views appear to differ. He believes that policy makers should look to relieve inflationary pressures by increasing interest rates, even though the UK’s recovery isn’t yet guaranteed. Dollar The Federal Reserve’s monetary policy has once again been called into question as the debt stricken nation continues to discuss inflation expectations. With interest rates still near to zero, way off the targeted 5.25 percent, there appears to be very little way forward for the now flagging economy. It now appears as though the Fed will be forced to begin withdrawing its record levels of monetary stimulus. Euro It appears that this weekend has exposed some flaws in the single currency. Pressure is increasing on Spain and Greece as the euro dropped to 7 week lows against several major currencies. Talks have continued between the ECB and the Greek government. However, it is now suggested that the ECB may not be able to accept Greece’s sovereign debt as collateral if the bond maturities are extended. Meanwhile, in Spain the socialist party suffered its worst defeat in more than 30 years. So, whilst the euro has proved very resilient to most things in recent month, could this be the straw that breaks the camels back? Other Currencies – Highlights The Australia Dollar has dropped against all but one of its 16 major counterparts as Asian stocks fell over concerns Europe’s debt crisis will worsen. China, Australia’s largest trade partner released figures displaying that manufacturing increased at a slower pace than last month. Consequently, the Aussie has stumbled its way through the weekend.