Some Recovery for the Pound

6 August, 2013

Matthew Boyle

The start of this month has seen a small but for many much welcomed recovery in the rates for Sterling, in particular against the Euro and the USD.

The recent shock drop in the rates following positive GDP figures and traders over positioning on the results, has in part started to be reversed.

Following the announcement on the 1st August that there would be no change to both ECB and BoE interest rates, we saw the pound begin to claw back some of the lost ground. This continued yesterday with positive PMI and retail figures from the UK, whilst German PMI came in under previous showing a slight contraction. This started to see a shift in the balance – something that hasn’t been seen in some time – and as such the rates started to increase and move in favour of the pound. This was then further compounded by a raft of Eurozone data including PMI and investor confidence, that whilst came in above previous results was under consensus.

Encouragingly the pound began to make gains against the USD whilst the US posted positive PMI and bill auction data – going against the recent trends and starting to show a small degree of confidence back with the pound.
So like we saw the pound drop following positive GDP data due to market overpricing, the same was witnessed with the GBP/EUR and GBP/USD rates and they started to creep up. This morning we have seen further positive data from the UK in the way of house prices – up 4.6 from 4.3 MoM and up 0.9 from 0.5 YoY so we may see further gains from the pound today. However do be aware – there are a number of other important releases later this week which could see this quickly reversed. Indeed tomorrow we have UK inflation but perhaps more importantly Mark Carney is due to speak at UK parliament. This will be an opportunity for him to make apparent his plans for the BoE moving forward and any hint at possible further QE could see the markets go wild. This then followed by the ECB monthly report on Thursday certainly has the potential to unsettle what has in the past few days been steady gains for the pound.

Elsewhere in the world Australia announced a cut to interest rates, down from 2.75% to 2.50% in what some say is an attempt to spur a fresh wave of economic growth. Whilst it seems the jury is still out as to whether indeed this is a good or bad thing for the Australian economy, we have seen a sharp drop in the rates, and with another cut predicted later this year this may well continue. So if for any reason you need to buy AUD in the near future speak to your broker asap. Indeed If you have any upcoming transfers to make, ensure you speak to your currency broker sooner rather than later to avoid any disappointment or being caught out. We help you stay well informed and well ahead of the markets.