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Better-than-expected economic data strengthens sterling

Published:  02 November, 2010

Sterling strengthened yesterday, hitting a high of €1.1544/£1 against the euro and $1.6090/£1 against the US dollar on better than expected economic data.

Currency Rates
EURO/GBP - 1.152
US$/GBP - 1.605
CHF/GBP - 1.589
CAN$/GBP - 1.623
AUS$/GBP - 1.606
ZAR/GBP - 11.177
JPY/GBP - 129.42
HKD/GBP - 12.447
NZD/GBP - 2.094
SEK/GBP - 10.693
US$/EURO - 1.393
HUF/GBP - 311.27

Sterling strengthened yesterday, hitting a high of €1.1544/£1 against the euro and $1.6090/£1 against the US dollar on better than expected economic data. Less than a week after UK third quarter GDP doubled estimates, PMI manufacturing data - a key measure of future orders in the sector - showed an unexpected jump despite expectations that the figure would fall. The data essentially means that sterling is 'off the hook' (at least for the moment) with regard to further Quantitative Easing, and as such, many commentators are expecting a recovery against the euro. With so much bad data 'priced in' (i.e. reflected in the price already) a return to positive UK data no longer justifies the poor sterling/ euro price. There is still a long way to go before sterling is back up to the top end of the €1.20's, but the last week has been a good start. Out today, there is Halifax house price data - notorious for causing price volatility.

In the Euro zone, it was a relatively quiet day for data in the region, with the euro taking a back seat as a result. Stronger than expected US manufacturing data saw the euro sink back from an overnight high of $1.4012/€1 to hit $1.3879/€1 in later trading. Against sterling, it was a case of better than expected UK data than anything particularly negative coming out of the Euro zone. Out today, Europe follows the US and UK with their manufacturing PLI data.

In the USA, the US dollar strengthened against the euro and Japanese yen after better than expected manufacturing data saw a flurry of 'short covering' where traders buy back on bets against the currency to avoid missing out. With investors braced for a fresh round of Quantitative Easing from the Federal Reserve, the US dollar gains were short lived. Estimates range from $80bn to $750bn, so whatever the eventual figure that the Fed announces, it has the potential to cause significant volatility. An announcement is expected overnight between Tuesday and Wednesday.

Elsewhere, US officials do not expect any swift action from China with respect to the undervalued Chinese yuan at the G20 summit in Seoul. Addressing 'global imbalances' in the form of currency 'pegs' (fixed exchange rates) is a key priority of the US party in Asia, as the artificially low currency makes Chinese goods artificially cheap relative to the US 'home grown' products and is seen as a key factor in not providing a competitive place for US manufacturers.

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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