Currency update: pound hits two week high

Published: 27 May, 2010

The first of our regular analysis of the currency markets from our partners, Smart Currency Exchange, sees sterling hit a two week high.

Sterling had a strong day against the euro on Wednesday as investors sold the single currency on concerns that Europe's debt problems were far worse than the UK. The pound rose 1% to hit a two week high of €1.1808/ £1 in afternoon trading.

With the UK election out of the way, the debt risk in the UK still saw the pound suffer against the US dollar but the pound is a far superior option for investors than the single currency. Expectations for growth were boosted earlier in the week when first quarter GDP showed an increase on the initial estimate but mortgage data released yesterday showed that the number of new mortgage approvals fell slightly on the month. Overall though, the number of mortgages approved rose 15.5% for the year and net lending increased by £1.825bn.

Here are the key currency rates as they stood at end of trading on May 26:

Currency Rates
EURO/GBP - 1.179
US$/GBP - 1.445
CHF/GBP - 1.670
CAN$/GBP - 1.528
AUS$/GBP - 1.734
ZAR/GBP - 11.121
JPY/GBP - 130.55
HKD/GBP - 11.267
NZD/GBP - 2.160
HUF/GBP - 327.38

In the euro zone, the single currency suffered from another round of poor sentiment as investors continued to sell the euro on concerns over sovereign debt. The single currency hovered very close to the four year low of $1.2143/ €1 after falling 1.5% against the US dollar.

The drop was in part fuelled by the news that China is evaluating its euro bond holdings as it is increasingly worried about the deficit in certain European countries. If China does offload euro holdings, this would presumably be to buy US dollars and we could see the euro plummet further. The markets will be watching this very closely over the coming weeks and months.

In the US, fundamental data released on Wednesday was strong. Durable goods orders came in a lot higher than expected and new home sales jumped to 504,000 - far more than the 425,000 that was expected. The main data out today in the US is the second estimate of 1st Quarter GDP. The general consensus is for an upward revision to 3.5% from 3.2%, but this could be more, as consumer spending has been strong over the last few months. In addition, there is initial jobless claims data that is expected to show a drop in claimants to the lowest level since August 2008. However, it is worth noting that US 'unemployment insurance' runs out after several months, so a drop in claimants does not necessarily mean those people are back in work.

Elsewhere, the pound continues to be volatile against the Polish zloty. Against the Australian dollar, the pound continues to trade between $1.73 and $1.75/ £1 as news was released overnight that private capital expenditure fell down under. Sterling fell marginally against the NZ dollar and is currently trading at $2.1577/ £1.

* Smart Currency Exchange is a currency partner to Harpers Wine and Spirit to provide readers and users a free bespoke currency service.

If you are making or receiving international payments and are interested in talking to Smart please go to: www.SmartWineSpirits.com to get a free no obligation quote or to download the Smart Wine and Spirit report specifically produced the UK sector for Harpers Wine & Spirit. Alternatively call Smart on 0207 898 0500.

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