Despite tough week sterling slightly stronger | Smart Daily Currency Note

Sterling

Sterling had a very poor start to the week – dropping to a sixteen month low against the euro and a two and a half year low against the US dollar following  Moody’s - one of the big three credit rating agencies - downgrading the UK’s sovereign rating by one grade to Aa1 from Aaa. As the week went on, sterling performed fairly well, benefiting from the turmoil on the other side of the channel as investors looked for a safer haven asset in the region. Murmurings that negative interests could  potentially be introduced by the Bank of England rates were then quashed by another member of the Monetary Policy Committee, boosting sterling. Some analysts suggest that, while poor GDP results and credit rating downgrade have driven traders to bet on sterling dropping, those positions are now being closed out and the tide may be beginning to turn. Today sees the release of the manufacturing Purchase Managers Index (PMI) data which has been broadly positive recently - if it remains so, this would support the recent strengthening. Get in touch to find out whether sterling is holding ground.

Euro

The euro has struggled more this week than in any other week since the start of the year, with sterling finally pushing back up to the 1.16 mark yesterday after the European Central Bank President said that he has no intention of tightening monetary policy in the Eurozone any time soon. Falling inflation, and the potential for decreasing interest rates, compounded widespread uncertainty that has reigned throughout this week after the Italian electoral debacle. Today is likely to see the same story continue, uncertainty as Dutch budget deficits look set to exceed limits and the Italian parliament situation rumbling on, the euro looks a much riskier prospect than a week ago and traders are taking note. Get in touch now for the latest news and rates.

US dollar

The US dollar started strongly this week making gains against most of its currency partners, but some of these gains were lost as the week went on. Headlines were dominated by the Federal Reserve Chairman's two day testimony. The Chairman suggested the benefits outweighed the negative with regards to the central bank's asset purchasing program, backing the central bank's current stimulus program. The testimony gave no signs that the Fed may slow or even stop monetary easing, in spite of recent murmurings that the central bank may look to taper asset purchases later this year. The Chairman also maintained pressure on Congress to act to prevent the USD 1.2 trillion of spending cuts that are due to start taking effect as of today. Markets are unsure about the consequences of such cuts, hoping that a compromise is reached sooner rather than later. Yesterday we saw preliminary fourth quarter GDP data come out much worse than expected with a reading of 0.1%, when more substantial growth at 0.5% had been anticipated. Conversely, strong employment data showed that less new people were claiming in unemployment related benefits than expected. Today’s main release is the Manufacturing PMI data. Call now for the latest rates and updates.

Worldwide

Elsewhere, as has so often been the case recently – the Japanese yen was one of the main talking points. The yen fell as Japanese prime minister put forward his choice for the next governor of the Bank of Japan - Mr Karudo – a renowned advocate of monetary easing to boost growth; but, strengthened as risk aversion swept through the markets. The Russian rouble struggled  after GDP data released showed that the economy had contracted by 0.3%. The Indian rupee suffered yesterday after the Indian government’s budget set out plans to increase spending despite the fiscal deficit targets that are in place. Overnight we saw the release of more Manufacturing PMI data from China and later on today we see GDP figures announced in Canada. Call in now for a market update and a live quote.