Sterling plummeted yesterday – dropping by 1.3% against the US dollar and 1.1% against the euro – as 4th Quarter GDP showed that the UK economy contracted by 0.5% in the last 3 months of 2010. Markets were expecting December’s poor weather to have an impact with analysts expecting a 0.5% gain, but the figure came as a great shock as there no longer seems to be any justification for last week’s talk of higher interest rates before the summer. Sterling is likely to maintain subdued now for the coming months until the fundamental data catches up with inflation – especially after Mervyn King essentially ruled out any interest hikes for some time after insisting that inflation would retreat after peaking at 5% later this year. On the plus side, we have seen a lot of clients moving sums back into sterling taking advantage of sterling’s demise.
In the euro zone, the euro rapidly jumped to a 2 ½ month high against sterling as the shock UK GDP contraction came through. The euro hit €1.1562/£1 – the highest level since November the 8th – as markets scaled back their expectations of an interest rate rise in the UK that had buoyed the pound last week. Aside from the euro’s movement against sterling, French consumer spending beat expectations, and the currency hardly moved against the US dollar all day as the majority of traders focused on sterling. Out today, we minimal data and Europe is likely to be overshadowed by UK andUS interest rate minutes and policy announcements. Call in now for a live exchange rate.
In the USA, the US dollar had a similarly strong day against sterling – gaining by nearly 2 cents against the nose-diving UK currency. Traders took advantage as sterling posted 1% losses across the board. The US dollar also took a boost from better than expected consumer confidence figures that added to the ever improving picture of a blossoming US recovery. Out later today, we have the Federal Reserve’s interest rate decision and policy statement. Markets are not expecting any changes, but subtle changes in the language used can be seen as a change in direction – either way it is a big day again, so call in now to ensure you don’t lose out.
Elsewhere, the Reserve Bank of India raised interest rates by 0.25% to clamp down on spiralling inflation and issued a warning that food prices would continue to rise without measures being taken to boost supplies and ease price pressures. Call in now for a live exchange rate.
EURO/GBP – 1.1540
US$/GBP – 1.5784
CHF/GBP – 1.4902
CAN$/GBP – 1.5737
AUS$/GBP – 1.5822
ZAR/GBP – 11.1740
JPY/GBP – 139.64
HKD/GBP – 12.293
NZD/GBP – 2.0535
SEK/GBP – 10.2801
US$/EURO – 1.3679
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