Currency update, August 2: strong week for sterling

Published: 02 August, 2010

Currency update for August 2 from Smart Currency Exchange: investors positive about UK's prospects after sterling puts in a strong performance.

Currency Rates, August 2:

EURO/GBP - 1.208
US$/GBP - 1.578
CHF/GBP - 1.652
CAN$/GBP - 1.616
AUS$/GBP - 1.730
ZAR/GBP - 11.466
JPY/GBP - 136.98
HKD/GBP - 12.259
NZD/GBP - 2.155
HUF/GBP - 340.55

It was a strong week for sterling - especially against the US dollar. The pound has already breached the five month high of $1.57/ £1 that was seen on Friday. The reason for sterling's strength was that the previous week, GDP data exceeded expectations to show 1.1% growth for the second Quarter in the UK. Also, Retail sales data was far better than expected last week. Investors now feel better about the UK's prospects.

However, Bank of England chief Mervyn King was still cautious, stating that the "UK economy still faces significant headwinds". He stated that there was still a possibility that interest rates could go down or more money could be pumped into the economy. Overall though, it was a strong week for sterling, but areas for concern still remain.

In the Euro zone, the news was dominated last week by the results of last Friday's European bank stress tests which showed that only 7 out of 91 banks needed further capital. While on the face of it, this may seem positive, the tests were heavily criticised for not giving a true picture of the sheer scale of the debt situation in the region. One analyst went so far as to say he was 'bemused' by the relative strength of the euro last week, and in early trading today we have seen the pound recover back above the €1.20/ £1 mark to hit a four week high. Given market estimates of €1.25/ £1 many see this as a good time to take advantage and protect yourself if you need to move euros into sterling.

Sterling jumped by nearly 6 cents against the US dollar last week after the release of UK GDP data and retail sales data. This morning, the pound has already hit $1.5790/£1. After strong UK data and relatively weak US data, investors now see the UK as a better investment.

The US dollar did strengthen briefly last week after strong US housing data, but US unemployment claims were fairly unimpressive. The big data of the week was Friday's GDP data, which showed that the US economy grew by 2.4% in the last quarter. This was worse than expected and shows a fall from last quarter's figure of 3.7%. The US recovery is stalling, but there is still scope for volatility over the next few months. This week we have a wide range of data including non-farm payroll data.

Elsewhere, New Zealand raised interest rates last week to 3.0% and the NZ dollar weakened after the governor of the Royal Bank of New Zealand downplayed expectations of further interest hikes. In addition, Australian inflation slowed dramatically in July falling to 2.8% from 3.6%. This reinforced expectations of flat monetary policy.

* 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.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. Alternatively call Smart on 0207 898 0500.

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