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Currency update June 8: pound jumps before settling above $1.45/ £1

Currency Rates: June 8
EURO/GBP - 1.211
US$/GBP - 1.447
CHF/GBP - 1.679
CAN$/GBP - 1.529
AUS$/GBP - 1.773
ZAR/GBP - 11.289
JPY/GBP - 132.26
HKD/GBP - 11.294
NZD/GBP - 2.187
HUF/GBP - 344.66

Sterling hit a fresh 18 month high against the euro yesterday and also strengthened against the US dollar. The pound jumped to €1.2176/ £1 as rumours circulated that investors were moving funds from German 'bunds' (government bonds) into UK government bonds (also known as 'gilts').

The move to UK based investments was attributed to fears over the structure of the euro zone as concerns grew even further that the euro will see serious problems over the coming years.

Following a poor start to the week due to risk aversion, the pound also rallied against the US dollar as speculation grew that Prudential had not yet finished buying back billions of US dollars worth of sterling following last week's failed bid to purchase AIG's Asian insurance arm.

David Cameron spoke today about the long road ahead for the UK economy, but there was little in his statement that the markets were not aware of already, as a lot of his 'revelations' over incorrect Labour forecasts have been suspected by a number of analysts for many months.

In the Euro zone, the euro hit a four year low against the US dollar of $1.1877/ $1, rapidly approaching the $1.15/ €1 that many analysts have been predicting. The fall was as a result of a statement last week by a Hungarian official who stated that the country had a slim chance of avoiding a Greek style crisis. Despite the fact that Hungary is not part of the single currency, it is a key trading partner for many European countries and poor news impacts the euro significantly.

There was a positive bit of data today - German factory orders unexpectedly jumped 2.8% for the month which was a welcome note, but this did little to change the poor sentiment. Out later today, there is a fair amount of 'low-impact' data and also German industrial production data. Get in touch now - especially if you are holding Euros and need to move them into another currency, as it could possibly get much worse.

In the USA, after a strong start to the day for the US dollar as investors moved to buy the safe haven currency, the US dollar gave back ground to most currencies with the notable exception being the euro.

With a relatively quiet day on the data front, the US dollar became a gauge of risk sentiment again. The general forecast is that the US dollar is set to strengthen against the pound, and once the volatility related to Prudential has worn off, expect the US dollar to continue to strengthen.

Elsewhere, Australian business confidence fell for the third month running according to a survey by the National Bank of Australia. This is the lowest level of confidence for nearly a year and is due to a recent super tax on commodities and also concerns that China is likely to cool demand in its economy which will have a knock on effect for the currency. Expect the Australian dollar to weaken over the coming months as it appears over valued currently.

* Smart Currency Exchange is a currency partner to Harpers Wine & Spirit. Harpers Wine & Spirit has teamed up with Smart to provide readers with a free bespoke currency service.
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Richard.siddle@william-reed.co.uk

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