Currency Update

Currency Update

As we all trudge back into work on a grey Monday morning after a grey weekend, the Pound also starts the week under a bit of a cloud. Last week Sterling briefly broke through 2 against the USD, but Thursday's stronger than expected US non-farm payrolls report, gave the Dollar a boost towards the end of the week, and sent Sterling tumbling almost 3c to this mornings trading. Thursday wasn't all bad news for the Pound as it did manage to claw back some losses against the Euro, this is in spite of the decision to raise Euro interest rates by 0.25%. The decision was widely expected, and therefore priced into the exchange rate, however in the press conference that followed ECB President Trichet implied that the rate hike would be a one off, and struck a more neutral tone than many expected. The markets reappraised the 3 rate hikes they had priced into the Euro, and sent the single currency down, allowing the Pound to climb back to it's recent range above 1.26.

It was a quiet day on Friday due to Independence day, and the markets stayed steady from where they were left on Thursday. Last week did see a dramatic slide in equity markets, with banking stocks suffering along with the broader market, however unlike in previous bouts of instability the usual safe haven of the Yen has not been given a boost, possibly due to worries over the energy importing Japanese economy and the cost of oil, but more likely due to a couple of large Japanese investment funds coming online and seeking better returns abroad than can be achieved domestically.

There is little data of note out for either the US or the Eurozone this week, so it is likely that Sterling will take centre stage. We've already had industrial production data out today, and it shows a much more drastic slowdown than many expected. The consensus was for a 0.1% drop, but the figure of a drop of 0.8%  paints a dark picture of UK industry and points to the sector almost coming to a standstill in the 2nd quarter of the year.  The risks of inflation are still keeping the prospects of rate cuts remote so the figures have not hurt the Pound much this morning, but we also have house price, consumer confidence, and retail figures out this week, which could be a bad one for Sterling.

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