Currency update, August 10: £1 struggles to break through $1.60

Published: 10 August, 2010

Sterling hit a daily high of $1.5998/£1 but slipped away as the pound yet again struggled to break through the $1.60/£1 barrier.

Currency Rates
EURO/GBP - 1.199
US$/GBP - 1.580
CHF/GBP - 1.664
CAN$/GBP - 1.629
AUS$/GBP - 1.731
ZAR/GBP - 11.431
JPY/GBP - 135.44
HKD/GBP - 12.265
NZD/GBP - 2.185
EURO/US$ - 1.316
HUF/GBP - 333.64

Sterling strengthened as the fallout from Friday's poor US jobs data continued to hammer the US dollar. With many financial options ready to trigger at the $1.60 level, as well as it being a key 'psychological' level there is a need for a large 'boost' for the pound to push through - and hold firm - away from the $1.50s. This week, we might have just that with the FOMC (the US equivalent of the Monetary Policy Committee) meeting getting under way yesterday evening. There is speculation that there may be further emergency funding injected into the US economy to help jumpstart the floundering economy. The decision is announced today. Aside from that, it was a quiet day on the economic calendar. Out later today, there is UK trade balance data and consumer confidence figures.

In the Eurozone, it was yet another quiet day. The euro has kept a low profile in the last few weeks, and as one Reuters reporter rightly asked today - whatever happened to the eurozone crisis? The euro is up nearly 10% against the US dollar, lending markets have improved and demand for sovereign debt in the region has increased. One argument put forward is that the risks were wholly over exaggerated. Talk of financial Armageddon and total collapse of the single currency was the norm a few months back, but now there is nothing. There are still significant risks, and several long years worth of tough spending cuts, but the panic has (for the moment) died down. This is likely to keep the pound from hitting €1.25/£1 in the short term.

In the USA, the fallout from last week's unemployment data continues to cause issues for the US dollar. Speculation over further quantitative easing has been high today and with the FOMC meting starting late last night. No recovery occurs in a straight line, and a run of poor data does not necessarily instantly mean that the US is entering a 'double-dip' recession. Lloyds TSB are predicting that the UK will enter a similar phase in 6-12 months and that we will see prices back towards the $1.40s.

Elsewhere, Australian business confidence fell to the lowest level in 14 months in July raising the likelihood that the central bank will hold off on the series of interest rate hikes that began last October. The rate rises have been filtering through into the 'real' economy of late, with a raft of consumer data showing that lending to consumers has dropped off.

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