Currency update, July 21: sterling recovers losses

Published: 21 July, 2010

Currency daily update for July 21 from Smart Currency Exchange: sterling recovered from Monday's losses yesterday as concerns over European bank stress tests saw investors taking profit from the stronger euro.

Currency rates, July 21:
EURO/GBP - 1.188
US$/GBP - 1.528
CHF/GBP - 1.607
CAN$/GBP - 1.584
AUS$/GBP - 1.729
ZAR/GBP - 11.569
JPY/GBP - 132.87
HKD/GBP - 11.886
EURO/US$ - 1.286
NZD/GBP - 2.126
HUF/GBP - 340.70

Despite starting the day poorly after data on UK public finances came in worse than expected, the pound recovered against the euro and US dollar breaking back above €1.18/£1 and $1.5250/£1.

Yesterday morning, data showed that the UK government was borrowing nearly £1.5bn more than expected. This was disappointing for many, who had expected the budget and spending cuts to have had an immediate impact. Falling share prices in the euro zone saw many investors take profit from the euro ahead of stress test results on Friday. This helped the pound recover against the euro.

The key data out today is the minutes from the Bank of England's recent interest rate policy meeting. It is again expected to show that only one member (Andrew Sentance) argued for an interest rate rise - if any more members join him, we could see strength from the pound.

In the Euro zone, the results of this week's bank stress testing are released on Friday and have been the source of most of the euro's movement this week. Tumbling stock markets in the region yesterday afternoon dented sentiment and prompted many investors to pull out of euro positions in case Friday's results were worse than expected.

German purchasing manager data showed an improvement - coming in at 0.6% against an expected improvement of 0.2%. There is little data out today, as the pound takes centre stage related to the Bank of England minutes.

In the USA, the big news so far this morning was the sudden 1 ½ cent drop of sterling against the US dollar in early morning trading. However, this has been put down to a trading error (or 'fat finger trade') by a Dutch bank and the pound has already recovered ground.

The major news out today is Federal Reserve Chairman Ben Bernanke's presentation of the half yearly monetary policy report to the US senate. The US economy appears to be losing momentum, so today's speech will be key.

Elsewhere, a gauge of economic performance over the last 6-9 months in Australia has slowed for the second consecutive period. The Westpac Leading Index appeared to show a peak, but the data is still strong and shows significant growth despite falling off. The Japanese yen rose overnight, as traders took up defensive positions in the 'safe haven' currency ahead of a lot of risky data releases for the rest of the week.

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