Today the Bank of England confirmed it is now even more pessimistic about the outlook for UK economic growth and believes it is likely inflation will remain above the 2% target for longer than initially expected. Lending to businesses remains subdued and the recovery is likely to be relatively slow but steady.

Three months ago growth forecasts for next year were estimated at 3.4%, this has now been reduced to 2.5%. This morning Sterling has been sold to its lowest level in a week down to 1.5668 against the US dollar.

The bank also confirmed it would be many years before bank balance sheets and fiscal positions returned to anything like normal. The bank’s comments signal that the UK economy may need more emergency stimulus and interest rates will remain at their lows for longer than expected.

Wednesday 11 August 2010, 02:29pm

This morning sterling is trading above 1.59 against the US dollar after a raft of strong earnings releases and positive economic data yesterday. A great start to the week, it looks like risk appetite is entering the financial markets again. The move in global equities is filtering through to FX markets and as a result sterling remains buoyant.

During the middle of July Sterling found support against the Euro around the 1.1750 region. The cross is now comfortably trading above 1.20 and looks firm.

The appetite for riskier currencies is evidence of a strong financial sector, this is especially true in the UK. It seems that many analyst have been undervaluing sterling for some time, the recent movements is a result of revaluation.

As the US economy begins to lose steam, the dollar is beginning to lose ground. The signs of weaker US growth have become apparent in recent weeks.

Tuesday 03 August 2010, 11:02am

Sterling instantly began its rally at 9:30am this morning on the release of the second quarter GDP data. The figure was expected at 0.6% but came in nearly twice as high at 1.1%. Sterling has not looked back since.

The pound is now trading at new highs for the week against the US dollar and the Euro. The UK economy seems to be picking up at a greater pace than its counterparts.

The result today reflects the fastest expansion for 4 years for the UK economy lead by manufacturing, services and construction.

Markets are awaiting the results of the European stress tests expected to be released at 5pm UK time. The EU regulators are examining the strength of banks to determine if they can survive potential losses on sovereign bond holdings. They are hoping the results will reassure investors about the health of the financial institutions. The Euro has been under pressure throughout the day against sterling and the US dollar. This afternoon the pound is back above 1.20 against the Euro.

Friday 23 July 2010, 04:10pm

This morning sterling has continued to rally as unemployment falls. Jobless benefit claims has dropped to their lowest level in a year. This is a positive sign, the UK economy is beginning to pick up pace.

Although it may appear the labour market is beginning to show signs of improvement, investors should be cautious. The new government has begun to implement austerity measures, public sector job losses will soon begin to filter through. It is possible we may see further deterioration in the labour market in the coming months.

Sterling rallied on Tuesday as UK CPI came in at 3.2% in June and year on year CPI stayed above the 2% target. The rally was the result of investor speculating the Bank of England will be pressured to raise interest rates earlier than expected.

This morning cable has broken above the 1.52-1.5240 resistance zone. Against the Euro, the pound looks like it has found some support around the 1.19 level.

Wednesday 14 July 2010, 10:12am

As the week draws to a close market sentiment remains poor. The US dollar has been sold to an 8 week low against sterling on speculation that the US economic recovery is slowing. Both Sterling and Euro have gained against the US dollar. US economic data is not helping the situation, the pressure is back on manufacturing whilst jobless claims remain buoyant.

Payrolls in the US fell 125,000 in June for the first time this year. The pace of hiring indicates it will take years for the US to recover the more than 8 million jobs lost during the recession. This will clearly have a knock on effect in spending.

Clearly, post-election sterling is looking bullish. Political uncertainly and fiscal issues are off the radar. The new government has made clear intentions to take control of the deficit and the FX markets have rewards their decision to do so. On Tuesday, the pound traded within touching distance of 1.24 against the Euro. Since then we have seen some profit taking and the Euro looking slightly firmer against other major currencies.

Friday 02 July 2010, 04:20pm

The budget report was widely accepted in a positive manner, Sterling has been rallying since the announcement. The bond markets have also been pushing up and rating agencies gave the report a warm welcome.

Moody’s Investor Services said the UK budget announced yesterday is “supportive” of the country’s AAA credit rating. Market participants are beginning to feel confident the government is taking rapid steps to tackle the UK budget deficit.

It seems that the new chancellors determined actions are supporting UK credibility in financial markets. Against the Euro, sterling is currently trading within touching distance to this year’s high at 1.2177. Cable has also perked up, trading at the highs for the month. It is possible we will see a retest of the 1.5000 level in the coming days.

However, from a longer term perspective, it is likely that the significant fiscal cuts on growth in the UK economy will hinder support for sterling.

Wednesday 23 June 2010, 02:41pm

The sterling rally against the Euro is beginning to feel the pressure around the 1.1800-1.1850 level. Last week the pound opened close the highs around the 1.1750 regions and was sold down to the 1.14 level at one point before finishing the week at 1.15.

Against the dollar, last week was the first positive finish for the Euro after 4 weeks of continuous aggressive selling. After trading below the 2008 low, the Euro found support around 1.2150.

In the UK the major news was the CPI figures, inflation at 3.7% well above the 2% target. The Bank of England is convinced the move is temporary and inflation will come back into line. Last week was a fairly range bound week for cable, trading between 1.4250 and 1.45. Uncertainty remains in the UK economy and traders will be examining plans by the coalition government to cut the initial £6bn of deficit.

Monday 24 May 2010, 11:13am

This morning uncertainty in the UK and the Euro-zone will be the topic of discussions in the FX markets.

The pound was sold on Friday as the election results were released confirming a hung parliament. Politicians have been working over the weekend to trash out a deal and stabilise financial markets. The media has reported that the talks have been positive and productive but until a formal arrangement is agreed, Sterling will continue to be fragile.

Over in the Euro-zone, the European debt crisis continues to shatter confidence in the single currency. Officials have announced an emergency fund of €720 billion which has been set up to hopefully act as a buffer for any country that may experience similar problems to Greece. The Euro has been brought on the back of the news but traders are still not convinced that this is a long term solution. Although the single currency will see some temporary support, traders should be cautious entering into Euro long positions

Monday 10 May 2010, 11:28am

The Euro continues to suffer despite a €110 billion bailout package on concern Greece will not be able to cut its debt sufficiently to avoid default. Euro zone finance officials are hoping the package will be sufficient to prevent the problems flowing over to Portugal and Spain.

This afternoon the Euro has traded below $1.31 for the first time since April last year. Sterling is on the verge of breaking above the 1.1621 level against the Euro.

From a technical standpoint the Euro continues to look weak, the selling continues. Volatility in the Euro zone has spiked enormously and the selling is now moving into the Equity market. The European banking sector being the hardest hit.

Tuesday 04 May 2010, 04:12pm

A shock rise in the cost of living is potentially a cause for concern as it likely interest rate rises may take place sooner rather than later. High petrol prices pushed UK inflation from the key 3% percent mark to 3.4%. Sterling saw a small spike against the US dollar and retracing back to lower levels.

Against the Euro, Sterling continued its recent rally. The pound is currently trading at levels seen back in February after breaking above the high of 1.1484 this morning. The next significant target on the upside is the late January high of 1.1621.

A 20 member team from the EU and IMF is due to start their delayed negotiations today on activating the 45 billion Euro emergency package for Greece. Greek bonds are now trading over a 450 basis point spread to the German bunds. The Greek government needs to raise 10 billion in May to meet its commitments.

The Euro continues to carry a heavy weight, traders are trying to filter between the positive economic fundamental data and the concerns over macro fiscal debt issues. If the Euro is sold back above the 1.16 level against the pound, technically this will be a good indication of higher prices to come in the second half of the year.

Wednesday 21 April 2010, 12:03pm