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Currency update, August 6: sterling looks strong

Published:  06 August, 2010

Currency update for August 6 from Smart Currency Exchange: it's been a strong week for sterling - especially against the US dollar.

Currency rates, August 6:
EURO/GBP - 1.203
US$/GBP - 1.587
CHF/GBP - 1.661
CAN$/GBP - 1.613
AUS$/GBP - 1.733
ZAR/GBP - 11.504
JPY/GBP - 136.63
HKD/GBP - 12.322
NZD/GBP - 2.180
EURO/US$ - 1.318
HUF/GBP - 335.55

We saw sterling hit a six month high of $1.5968/ £1 against the US dollar earlier in the week after a run of strong banking earnings from HSBC, Lloyds TSB, Barclays and RBS. The return to profit from UK banks saw the FTSE 100 surge as investors felt that the major risk to the UK economy had now passed. This in turn saw demand for the pound rise.

Better than expected manufacturing data helped increase demand for sterling, but construction data was worse than expected highlighting that there are still areas for concern. Sterling is likely to struggle to break through $1.60/£1 without significant data giving it a reason to move. The Bank of England Monetary Policy Committee kept interest rates and quantitative easing on hold as was widely expected.

In the Eurozone, sterling strengthened earlier in the week against euro on the strong bank earnings. Since then it has stayed in a very tight range between €1.2040/£1 and €1.2070/£1. European data has been fairly limited this week, with monthly retail sales figures showing no growth from last month. In addition, the French trade balance improved by around €2bn and the European Central Bank kept rates on hold as was expected. There is always opportunity to take advantage of volatility - despite the lack of movement this week.

In the USA, investors have been concerned over the state of the US recovery, which has lead to the US dollar's decline this week. Federal Reserve Chairman Ben Bernanke opened the door for further emergency funding stimulus this week. Speaking to the Senate, Bernanke said that he would pump further money into the economy if it was needed. Today sees the release of the 'Non-Farm' Payroll data - essentially a measure of employment that excludes seasonal workers, as they can cause spikes in the figures. Pre-cursors this week have been positive, with the claimant count dropping yesterday. However, the Non-Farm Payroll has potential to move the markets when it is released later this afternoon.

Elsewhere this week, unemployment in New Zealand rose by 0.8% which came as a surprise. In addition, quarter on quarter employment declined by 0.3%. This saw the NZ dollar weaken, as interest rate expectations fell. The Australian dollar strengthened significantly in the second half of the week after the trade surplus increased more than expected after strong demand for iron ore and coal from China.

* Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service.

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