Sterling recovers from knee-jerk drop

Published: 07 January, 2011

Sterling had a shaky start to the day yesterday, falling against the US dollar and euro following worse than expected data for UK services sector activity for December.

Currency rates, January 7:
EURO/GBP - 1.1885
US$/GBP - 1.5434
CHF/GBP - 1.4895
CAN$/GBP - 1.5422
AUS$/GBP - 1.5566
ZAR/GBP - 10.506
JPY/GBP - 129.00
HKD/GBP - 12.002
NZD/GBP - 2.038
SEK/GBP - 10.596
US$/EURO - 1.2981

Sterling recovered from the early knee-jerk drop as the poor figures were attributed to the prolonged disruption that December's snow caused in the UK. As a result analysts dismissed the figures (that showed service sector activity at the lowest since April 2009) as a seasonal anomaly due to winter weather. The UK is still in a very strong position moving forward especially against the euro - a fact demonstrated by the fact that sterling jumped 0.85% to €1.1899/£1 despite the day's negative data as investors would rather hold sterling than euros.

In the euro zone, the problems persisted for the single currency, with the euro falling by 1% to a 5 week low of $1.3013/€1 against the US dollar following Wednesday's better than expected US employment figures. The euro did see a brief boost following reports that China was looking to buy around €6 billion of Spanish government debt, however the currency did not react at all to news that economic sentiment in the region jumped in December.

In the USA, the US dollar continued to benefit from Wednesday's ADP non-farm payroll figures that showed nearly 200,000 more jobs were added to the economy than was expected last month. Today we see the Bureau of Labor Statistics 'official' non-farm payroll reading, so numbers either side of the 140,000 new jobs that are expected by analysts will see some movement. However, any dollar gains are likely to be limited by the fact that the Fed feels current economic conditions do not warrant a scaling back of the $600 billion quantitative easing package in place.

Elsewhere, the Brazilian real slumped yesterday after the central bank imposed reserve restrictions on banks' foreign exchange positions in a bid to weaken the currency and keep Brazilian exports competitive.

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.

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.

Printer friendly version