Early yesterday
morning, sterling saw gains against the dollar after positive UK manufacturing sector data and
mortgage approvals increased optimism that the British economy is improving. Helping
the pound further was broad selling of the dollar ahead of key US
economic data due later in the week.
The CIPS/Markit
purchasing manager's index came in at 54.1 for December, up from 51.8 in
November and exceeding forecasts for 52.0. The data showed UK manufacturing activity expanded
at its fastest pace in more than two years.
Other data showed
that British lenders in November approved the highest number of home mortgages
since March 2008, while the Bank of England's preferred gauge of money supply
showed a significant increase.
By 2.30pm, sterling
traded at $1.6190, having climbed as high as $1.6242 after the data earlier.
Later on sterling had fallen to a session low of $1.6060, but recovered after
widespread pound buying as London
traders returned from the New Year holiday.
The pound didn’t
fair so well against the euro, at mid afternoon the euro had gained around 0.6%
against the pound, the rate had fallen to a day low of €1.1198 after a European
central bank bought enough euros at around €1.1261 to push the rate down. The
pound had been as high as €1.1296 earlier in the session, however a 200 day
moving average helped the euro against any further losses.
2009 was a difficult
year for the pound, but not the worst, many will remember the collapse the
pound suffered at the end of 2008. Although the pound in 2009 hit highs around
the $1.70 and €1.19 marks, it struggled to maintain momentum and each peak was
followed by an equally significant trough. These rapid movements have been down
to a variety of reasons ranging from the controversial Quantitative Easing
Programme, the MP expenses scandal and a loose lipped monetary policy committee
who seemed happy to talk the pound down at every available opportunity. However
despite the hurdles the pound finished 10% up against the dollar and 7% up
against the euro.
This week we see the
Bank of England meet for their monthly interest decision meeting, as has been
the case for many months now, consensus is they will leave rates on hold at
0.5%, further quantitative easing will be discussed but it is unlikely there
will be any increases as key indicators have been fairly upbeat recently.
On January 26th
the Office of National Statistics will release the first estimate for the
4th Quarter GDP figures. If these figures show a positive number,
the UK
will officially have left one of the worst recessions to date and this will
undoubtedly have a positive affect on sterling strength. But do cast your minds
back to October when the 3rd Quarter figures were released, almost
ever trader and analyst expected a positive reading, but the actual figures
told a different story and were significantly worse than expected, causing the
pound to plummet.
Whatever the outcome
of the GDP figures, the UK
finances are in terrible state, recession or no recession. There is still a
long way to go before an investor looks around the world and decides the UK and
the pound is the best option to earn revenue, until that time the pound will be
under pressure from the US which appears to be recovering well and the Eurozone
which without the major banking issues never really seemed to be under threat.
Moving on to today, Germany
sees the release of employment data, whilst the UK PMI construction is
released. Later on we have CPI for the Eurozone and Pending Home Sales and
Factory Orders in the US.
At 9.00 this morning
the pound was at $1.6059, €1.1130, 11.72 ZAR, 147.575 JPY, 11.33 SEK and
AU$1.7574. The euro was at $1.4426 against the US dollar.
