Sterling gained against US dollar after better tone in stock market

Published: 15 August, 2011

Sterling gained against the US dollar on Friday, boosted by a better tone in stock markets but hampered by lingering concerns over the UK economy and the fact that interest rates are set to stay on hold for some time.

Currency Rates
EURO/GBP - 1.1364
US$/GBP - 1.6260
CHF/GBP - 1.2905
CAN$/GBP - 1.6061
AUS$/GBP - 1.5592
ZAR/GBP - 11.5820
JPY/GBP - 125.07
HKD/GBP - 12.6770
NZD/GBP - 1.9402
SEK/GBP - 10.5074
US$/EURO - 1.4303

Sterling has begun to demonstrate signs of safe-haven demand as global investors diversify away from the US dollar and euro, but this wasn't helped by the widespread looting and images of burning buildings that dominated news headlines last week. In the coming week we have UK inflation figures released tomorrow that came in at 5%. While the Bank of England has largely given up on its 2% target, it will hope that they are lower. Wednesday sees the minutes from the Bank's most recent meeting.

In the euro zone, the extreme volatility last week and widespread rumours over the sovereign debt crisis left investors very jumpy. News over the weekend suggested that German ministers were close to caving in to the idea of a common 'euro bond'. This move towards a closer fiscal union is seen as a great move and would certainly reduce the volatility we have seen on bond markets in relation to Italian, Spanish and Greek government bonds. Infamous former hedge fund manager yesterday called for Greece and Portugal to quit the euro completely. Out this week we have European second quarter GDP - bad results would worry the markets.

In the USA, markets will be hoping for a less turbulent start to the week than last Monday when stock markets plummeted after the US credit rating was downgraded. However, comments from the head of the World Bank will not help. Robert Zoellick warned that recent events had pushed us into a new 'danger zone' and that leaders in the US and elsewhere should wake up to the severe loss in market confidence in their economic leadership.

Elsewhere, Swiss and Japanese authorities are simultaneously threatening to take action to halt the appreciation of their currencies against the US dollar. As investors seek refuge from risk amid increased risk and turmoil, they are increasingly turning to the Swiss franc and Japanese yen. The euro and US dollar have jumped by nearly 3% against the Swiss franc this morning on rumours that the Swiss National Bank will peg the exchange rate against the euro.

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