Currency update, September 24: Sterling rises as Euro zone data comes in worse than expected

Published: 24 September, 2010

Sterling rose against the euro yesterday as Euro zone data came in worse than expected and cast doubts over the validity of the region's recovery.

Currency Rates
EURO/GBP - 1.175
US$/GBP - 1.566
CHF/GBP - 1.538
CAN$/GBP - 1.617
AUS$/GBP - 1.646
ZAR/GBP - 11.096
JPY/GBP - 132.85
HKD/GBP - 12.166
NZD/GBP - 2.149
US$/EURO - 1.333
HUF/GBP - 330.09

European Purchasing Manager's data (which shows how much companies are buying) came in far worse than expected causing concerns that the business outlook for the region is looking poor. Sterling rose to €1.1799/£1 on the news and left Wednesday's four month low behind. However, according to Spencer Dale (chief economist at the Bank of England), the UK faces "substantial headwinds" attributable to government spending cuts and tight lending conditions. This leaves a distinct possibility that the Bank of England will inject further money into the economy to stimulate growth. One question needs to be asked though - is the bank's negative rhetoric a ploy to keep sterling weak and drive exports and a rebalancing of the UK economy? We shall have to wait and see.

In the Euro zone, the euro had a poor day yesterday falling 0.6% against sterling and 0.5% against the US dollar after worries surfaced over the Irish economy. 2nd Quarter GDP for Ireland showed a 1.2% decline against an expectation for 0.5% growth which highlighted the struggle being faced by the country and other 'peripheral' European economies. Wednesday saw the Irish government deny that neither the country itself nor any of the banks within it would default on their debt. Bond markets reacted poorly to the news with the spreads on Irish bonds rose to a record high - a clear sign that investors are avoiding the country's debt. Out tomorrow there is German business climate data so call in to ensure that you protect yourself against adverse market movements.

In the USA, data was mixed yesterday. Initially, the US dollar fell against the Japanese yen as the number of unemployment claims unexpectedly jumped from 453,000 to 465,000. However, later on data was released that showed existing home sales had increased from 3.8m to 4.1m. The US dollar recovered a lot of the ground lost against the euro in the last few days, but with the prospect of further Quantitative Easing looming it is hard to see the US dollar going much further at the moment. Out today, there is new home sales data - speak to a trader now to minimise your losses.

Elsewhere, the New Zealand dollar fell against its major counterparts after 2nd Quarter GDP growth figures disappointed. The data showed figures of 0.2% against an expectation of 0.7% growth. It marks a sharp drop in the currency and demonstrates the volatility that is prevalent in the commodity backed currencies.

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