YB FX Daily Report – 21st May 2009

YB FX Daily Report – 21st May 2009

Sterling continued it rally yesterday with good gains against both EUR and USD getting above 1.1450 and 1.58 respectively. GBP is now it the highest it's been this year both against the USD and the single currency.
The gains seem less about risk appetite and more down to dollar weakness as stock markets were quite mixed during trading yesterday with both the S&P closing down 0.5% down and the FTSE finishing 0.3% after rising in early trading. The FOMC minutes seemed to have a lot to do with the reversal of early gains with the Federal Reserve cutting it's forcast for growth over the next 3 years and also increasing the outlook for unemployment.

This information has weighed on the USD and as it is now loosing some of the support it has had from investors looking for safety, it finds itself at around the lowest point this year against several major currencies. This has been amplified by the reports that several countries could be looking at turning their back on the USD as a reserve currency as well as worries about the credit rating of the US being downgraded.

German Purchasing Manager Index came in higher than expected this morning to a 7 month high giving the EUR a little support. Also out this morning are the UK Retail Sales Figures which came in much higher than expected, up 0.9% compared to the estimated 0.5%. This has not really had an effect on GBP and it's possible that it has run out of steam after the large gains recently. It is now looking like the negative view of sterling is subsiding and the pound is finding support once again with more faith in the policies put in place to aid a recovery and although more gains may be a struggle and these highs may only be temporary short of some very bad news or poor figures GBP should be in a much better position to hold onto some of the gains it has made over the last few weeks.

Jonathan Greensit | Assistant Manager, Treasury Solutions | Wholesale Banking | NAB Limited

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