Sterling holds firm

Published: 13 July, 2012

Sterling held its own this week against most currencies and gained ground against the euro, at one point it reaching €1.27/£1, which was last seen in 2008.

Currency rates - July 13

This week - (Last week)
EURO/GBP 1.2646 - (EURO/GBP 1.2536)
US$/GBP 1.5436 - (US$/GBP 1.5527)
CHF/GBP 1.5199 - (CHF/GBP 1.5067)
CAN$/GBP 1.5715 - (CAN$/GBP 1.5758)
AUS$/GBP 1.5190 - (AUS$/GBP 1.5120)
ZAR/GBP 12.8265 - (ZAR/GBP 12.6725)
JPY/GBP 122.29 - (JPY/GBP 124.01)
HKD/GBP 11.968 - (HKD/GBP 12.0420)
NZD/GBP 1.9504 - (NZD/GBP 1.9341)
SEK/GBP 10.8216 - (SEK/GBP 10.8170)
AED/GBP 5.6651 - (AED/GBP 5.6998)
US$/EURO 1.2188 - (US$/EURO 1.2380)
INR/GBP 85.90 - (INR/GBP 86.08)

A quiet week on the UK economic data front with whatever data that was released being in line with expectations. What was happening elsewhere that had a greater influence on exchange rates.

The euro had a bad week losing ground against most if not all currencies. At one stage sterling hit albeit briefly €1.27/£1, a rate last seen in 2008. Against the US$ it fell below US$1.22/€1. Slightly strange as we also saw yields on Spanish and Italian government debt fall at the same time and experience would say that the euro strengthens when this happens. I think there are two key reasons for the euro's weakness. Firstly the reduction in interest rates on the euro which came into effect this week and has led to investors selling the euro and investing elsewhere. Secondly we have a lack of detail and a lack of clarity of timing for implementation on the bank bailout plan agreed at the last EU summit. Difficult to see the euro having many friends in the short term.

The US$ has been the main short term beneficiary. Risk aversion has led to greater investments in US treasury bonds which has been supportive of the US$. We also had the release of the minutes of the last Federal Reserve meeting which was neutral on further quantitative easing and as such added further support to the US$.

There are all round concerns as growth in China is slowing and interest rates are being reduced. This seems to be a theme throughout the world with Brazil reducing rates for the third time this year. Not good for the commodity backed currencies which have been so dependent on what is happening in China.

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