fx

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 26^th the Office of National Statistics will release the first estimate for the 4^th 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 3^rd 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.

Yesterday sterling fell to a one month low against the euro as consumer confidence figures in the UK came back lower than expected. The figures show that down on the high street, the UK consumer is still concerned about the state of the economy, particularly when it comes to personal finances. A monthly GfK NOP survey showed its UK consumer confidence index fell to -17 in November from -13 in October, below a forecast for -11 and marking the first fall since January.

This came after a slight rise in demand for the riskier currencies such as the pound against the safe haven currencies like the US dollar and Japanese yen as investors felt Dubai may have just managed to side step the worse of the potential problems it faced. It was widely reported at the end of last week that Dubai World asked for its debt repayments to be frozen whilst it re-evaluated its finances and looked for further funding, Abu Dhabi has indicated it may provide additional resources to keep Dubai running.  

By 2.45pm, the euro had strengthened by half a percent against the pound taking GBPEUR down to €1.0943, its lowest since late October.

Against the dollar, sterling remained unchanged on the day at $1.6477, falling back from the earlier high of $1.6593. The pound had fallen as low as $1.6252 on Friday, hitting its weakest in more than three weeks after Dubai's debt shock. The pound pulled back yesterday after it was unable to climb into the $1.66 region due to technical resistance, with the 21-day moving average hovering around $1.6610 and the 14-day moving average around $1.6625.

Additional data releases later in the day made little if any impact on sterling attractiveness. Data showed a small rise in UK house prices in November, with a rise of mortgage approvals in October. Other figures showed a fall in UK net consumer credit in October as consumers repaid the highest amount of unsecured credit on record last month.

Later on today we see the release of retail sales figures in Germany and Manufacturing PMI figures for Germany, the UK and Eurozone as a whole. US housing data in the afternoon finishes off the significant reports today. Tomorrow sees UK PMI construction data, whilst Thursday see a wide range of releases including Eurozone GDP, retail sales and interest rate decision meeting followed by Trichet’s speech, with various employment figures in the US.

At 9.15am this morning, the pound was slightly up over Asian trading at $1.6534, €1.0969, 12.12 ZAR, 143.719 JPY, 11.44 SEK and AU$1.7927. The euro maintained its position against the US dollar at $1.5071

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Sterling fell yesterday, hitting its weakest in a month against the euro and a basket of currencies because of worries about British banks' potential exposure to debt problems in Dubai. Dubai's shock move on Wednesday to restructure Dubai World, and delay repayment on some of the company's $59 billion of liabilities, sent ripples through financial markets, denting equities and riskier currencies. Some traders and analysts said sterling was underperforming because of concerns that some UK banks may be affected, although no exposure was confirmed. The pound is particularly sensitive to any banking sector problems, given the fact that the financial sector makes a large contribution to the UK economy. In the UK the FTSE 100 fell 3.2 percent, its largest one-day decline for eight months.

At 4.00pm, the pound was down 0.4 percent against the euro at €1.1001, earlier the single currency broke above 91 pence (€1.0989) for the first time in a month. Sterling fell 1.3 percent against the dollar to $1.6495, just shy of a session low $1.6475. Against a broadly firmer Japanese yen, sterling fell more than 2 percent to hit a six-week low of 142.60 JPY.

European bank shares fell around 5 percent yesterday on concern about their potential exposure to Dubai debt problems. The fall was led by HSBC, Standard Chartered, Barclays, Deutsche Bank, Royal Bank of Scotland.

Apart from the Dubai crisis, because of Thanksgiving in the US, yesterday did not see much in the way of important data releases. Today we have the release of The Consumer Confidence data released by the European Commission, this is a leading index that measures the level of consumer confidence in economic activity, the data releases today are not expected to have a direct impact on market volatility. 

At 10.00am this morning the pound was at $1.6392, €1.1004, 12.41 ZAR, 141.80 JPY, 11.51 SEK, 1.7565 CAD, 1.6598 CHF and AU$1.8193. The euro had fallen to €1.4895 against the US dollar.

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