YB Currency Update – Friday 12th June

YB Currency Update – Friday 12th June

Sterling continued to strengthen yesterday after a small correction early in the week and hit year highs against the Euro getting above 1.1750 before coming off a little this morning. It also made good gains against the USD taking it almost to 1.66. In regard to interest rates, term rates have jumped massively over the last week and show that markets are expecting a rise in interest rates, and a recovery, much sooner than was expected a month ago.

The USD has been under continued pressure and has lost a fair amount of ground against several of the smaller, more risky currencies although the Euro has struggled against the greenback more than most, highlighting the market concerns for the eurozone outlook with a spate of non too rosy economic data out for the region recently. This is in contrast to much of the more optimistic data out for the US and the global economy as a whole as the IMF raised it's forecast for global growth from 1.9% to 2.4%. US retail figures showed that although wages were down and job losses were up there was still a rise of 0.5% in sales in May. This was in line with expectations and points to a higher chance of the Fed hiking interest rates as soon as the back end of the year.

Australia continues to show it is surviving the downturn rather well with yesterdays job report showing just 1.7k fall in employment, considerably better than the expected 30k. The probability for the RBA to cut rates again by the end of the year has dropped to 20% from almost 100% chance last week. All this is very good news for Australia and should see the AUS continue it's positive run against EUR, JPY and the USD.

Not a great deal on the news front today with the ECB Trichet's speech at 13:30 and the import price index in the US this afternoon and the Reuters/Michigan Consumer Sentiment Index, which is expected to remain broadly the same. The pound is in quite a good position going into the weekend and as long as Mr Trichet does not come out with any massive positive revelations about the Eurozone, the pound should be able to keep hold of the much of the gains it has made this week and with the negative outlook on the USD and the EUR we could see even more gains over the next week or so.

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