UK credit rating outlook stabilizes

Published: 29 October, 2010

Sterling had a poor start to the week on concerns over further Quantitative Easing that were hanging over the pound following last week's relatively negative Bank of England minutes. This saw sterling hit a seven month low of €1.1184/£1 against the euro on Monday. However, Tuesday's GDP figures of 0.8% beat expectations and the UK credit rating outlook upgraded to "stable" from "negative" following spending review.

Currency rates:
EURO/GBP - 1.147
US$/GBP - 1.591
CHF/GBP - 1.567
CAN$/GBP - 1.628
AUS$/GBP - 1.633
ZAR/GBP - 11.171
JPY/GBP - 128.39
HKD/GBP - 12.345
NZD/GBP - 2.109
SEK/GBP - 10.808
US$/EURO - 1.386
HUF/GBP - 313.69

Sterling hit highs of €1.1486/£1 and $1.5970/£1 on Thursday as a result of more positive sentiment towards the UK. This came despite figures showing that house prices fell by more than expected in the previous month and disappointing retail sales figures. Overall though, it was a good week for sterling as fears over further Quantitative Easing subsided.

In the Euro zone, the euro started the week strongly as a key member of the ECB stated that the central bank would look to raise interest rates sooner than the USA or UK. However, sterling jumped by nearly 3 cents against the euro following the surprisingly positive UK GDP on Tuesday. The euro also suffered after stronger than expected US data saw the euro drop below $1.40/€1 and with many investors waiting to see how much additional funding the US Federal Reserve pumps into the economy next week, the euro was held back against the US currency. European data was mostly as expected but French consumer spending jumped by 3% and industrial orders improved by an unexpected 5.3%.

In the USA, the US dollar fell to a 10 week low against sterling this week despite a slight recovery midweek. The main issue for the US dollar has been the issue of further Quantitative Easing which is widely expected to be implemented next week. Many investors have been taking out extreme 'short' positions against the US dollar. This has helped other currencies hit highs and despite last week's G20 summit discussions over "currency wars", the US dollar is still hovering around 15 year lows against Japanese yen.

The Australian dollar surged by nearly 1.3% against the US dollar this week on the news that Singapore stock exchange will buy the Australian stock exchange. In addition, a surprise jump in producer prices spurred speculation that the Reserve Bank of Australia would raise interest rates in their next meeting.

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