YB Currency Update – Tuesday 8th September

YB Currency Update – Tuesday 8th September

With the start of the week quiet on the data from the G20 meeting of finance ministers at the weekend set the tone for Monday. The announcement for the meeting were broadly in line with what was expected: recovery weak, chance of double dip recession, member states agree to continue stimulus plans, but like an insecure wife, or girlfriend, the markets need such reassurance and when they get it they react. There was a measurable rise in risk appetite and the biggest recipient was the Australian Dollar, which has risen to a 1 year high above 0.86 against the USD. The Australian Dollar has benefited as the global economy recovers from it's slump, especially as the Australian economy hasn't suffered as much as other 'developed' nations, and is linked heavily, through commodities, with the Chinese economy which has continued to grow strongly throughout, although not as strongly as the Chinese government would have liked. With the prospects for a rate rise in October or November, the AUD could have further to rise before the rest of the world catches up.

Sterling hasn't benefited from the rise in confidence as the markets look towards this Thursday's MPC meeting. The last meeting surprisingly increased the amount of QE, with three of the nine members, including Governor king, voting for an even bigger increase. The risk that they may decide to put through the extra increase this month is what is keeping the Pound subdued, although whether enough  time has passed since the last meeting to convince some of the other six members that a change is needed. The chances of a extension to the QE policy has allowed the rise of the AUD to push the Pound down to below 1.91, a level last seen in 1996.

The Pound has not suffered as much against the USD or the EUR, even with German factory orders growing 3%, well above the 2% increase expected. The Pound has managed to cling onto it's level of around 1.14, against the single currency, and has been wavering around a wide range of below 1.6350 and 1.6470 overnight. There is still a chance that the Pound will slip back further, especially if the MPC deliver the QE news this Thursday that some expect. Towards the end of the year the Pound should still recover as the global recovery continues, discounting a double dip recession, but it could be a rocky road ahead before we see Sterling back to levels it's hit only a few weeks ago.

The quiet start of the week was in no small way due to the Labour day holiday in the US, but they come back today with a consumer confidence report this afternoon, before that we have UK industrial production figures which are expected to show an increase, not least due to the return of car production in some factories. Regardless of the data the Pound is likely to remain subdued ahead of the risks posed by Thursday's MPC meeting.

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