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Sterling strengthens against dollar, but weakens against euro

Published:  30 July, 2012

Sterling continued to strengthen against the US dollar on Friday, but remained weak against the euro, as risk appetite returned to the market due to renewed confidence in Europe.

Sterling continued to strengthen against the US dollar on Friday, but remained weak against the euro, as risk appetite returned to the market due to renewed confidence in Europe.

Currency Rates - July 30

EURO/GBP - 1.2772
US$/GBP - 1.5702
CHF/GBP - 1.5341
CAN$/GBP - 1.5771
AUS$/GBP - 1.5008
ZAR/GBP - 12.8415
JPY/GBP - 123.08
HKD/GBP - 12.1799
NZD/GBP - 1.9429
SEK/GBP - 10.8010
AED/GBP - 5.7644
US$/EURO - 1.2281
INR/GBP - 87.09

The main UK data this week includes manufacturing, construction and services Purchasers Managers Index (PMI) figures which will be closely monitored by investors following last week's poor preliminary GDP data. The other main event will be the Bank of England's decision on interest rates and quantitative easing following last month's decision to inject an additional £50bn into the economy. Both are widely expected to be kept on hold despite calls for more monetary easing from some quarters.

The euro faired fairly well on Friday following news that Germany, France and Italy all supported the ECB President's attitude of doing anything to support the euro. However, the German central bank once again announced its opposition to the bond buying program that the ECB President hinted towards on Thursday. The ECB President's comments have heightened expectations for the press conference that follows the ECB's interest rate decision on Thursday (widely expected to be kept on hold at 0.75%) and anything short of a clear plan for decisive action will most likely see the euro struggle. Data released this week includes Spanish flash GDP; Italy's benchmark 10 year bond auction and Euro wide manufacturing PMI. The main focus though will remain on the potential requirement for a full Spanish international government bailout, Greece's ability to convince its creditors that it had done enough to deserve its next tranche of funding and the aforementioned ECB press conference.

The US dollar struggled on Friday due to the increased appetite in the market. Advanced GDP data came in slightly above expectations although growth had dropped to 1.5% for the second quarter. The first quarter figures and fourth quarter figure from last year were revised upwards and because of this expectations of further quantitative easing to be implemented this week have receded. The Federal Open Market Committee statement later this week will be important and is expected to give more guidance on keeping interest rates low until 2015. A busy week for the US includes a raft of employment based data with the most influential release being the non - farm pay roll figures which are released on Friday. Both the ISM manufacturing and non- manufacturing PMI data will also be released this week which the markets will hope show an improvement on the poor manufacturing data released last week.

Elsewhere, the commodity backed currencies continued to perform relatively well on Friday with renewed confidence in the markets. On the data front, Japanese retail sales figures demonstrated a rise of 0.2% whilst national CPI data released showed a deflation of 0.2%. A busy week for data includes building approvals, retail sales and trade balance data from Australia; business confidence figures from New Zealand; Canadian GDP data; Chinese manufacturing PMI and Swiss retail sales figures will also be released.

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