Sterling Benefits From US Sentiment

Tuesday we had a few data releases out of importance from across the main economic areas, each of which played their part in the gains the pound made against the ailing single currency.

It was a busy day for data which kicked of in the UK with inflation figures which showed an on par reading for October and an increased reading for the year, coming in at 1.1% rather than the expected 1%. This gave the pound a little momentum to carry on the recent rally against the euro which has been under pressure recently from expectations of further QE next month, coupled with US interest rate rise forecast for December. The readings gave the pound a half cent jump against the dollar and started the run against the euro.

The euro wasn’t helped by the ZEW economic sentiment survey which posted a reading of 28.3 compared to the expected 35.2 and then suffered further once the US inflation figures came out at lunchtime which from a zero percent reading last month and an expected reading of 0.1 percent this month, actually posted 0.2 percent.

The importance of this is not the reading but the underlying support an increased reading means to the credence of an interest rate rise in December. This is what is giving the dollar its recent strength and the reason why the euro is currently under so much pressure, due to the currency see saw and the under current of ECB QE being on the cards. This is a negative thing for the euro whilst an interest rate rise is clearly a positive, as higher interest rates mean higher return for investors. The pound has been making hay in the meantime against the single currency taking full advantage of its weakness, giving us some of the best levels in 7 years.

As such, most clients with an upcoming euro requirement are opting to purchase on a forward contract taking full advantage of the exceptional exchange rates whilst not tying up all their capital, requiring just 10 percent of their overall sterling exposure to secure 100 percent of the euro funds. Speak to one of the CI team today to see if this could be the best option for your upcoming need.

Today we have a fairly quiet day on the markets, which means we will most likely be led by sentiment again, but could also mean we see some profit taking ahead of the FOMC minutes which are released this evening at 6pm. As the data is coming out after European trade finishes, we could see UK and EU traders take their profits from the recent days gains ahead of the announcement tonight from the US which we hope might give some further insight into if US interest rates might go up next month. As such, anyone who hasn’t taken advantage of the current run, might be prudent to keep in close contact with their broker here at Currency Index in case things go downhill.