Mixed day for sterling on Friday

Published: 23 July, 2012

Sterling had a mixed day on Friday reaching fresh highs against the euro of €1.2865/£1 but weakened against the US dollar after the bailout of the Spanish banking sector was confirmed during the Euro group meetings.

Currency Rates

EURO/GBP - 1.2854
US$/GBP - 1.5573
CHF/GBP - 1.5450
CAN$/GBP - 1.5818
AUS$/GBP - 1.5102
ZAR/GBP - 12.9871
JPY/GBP - 121.47
HKD/GBP - 12.0760
NZD/GBP - 1.9642
SEK/GBP - 10.8474
AED/GBP - 5.7152
US$/EURO - 1.2096
INR/GBP - 86.87

Public sector borrowing figures released on Friday were worse than expected with higher public deficit and borrowing; but this had little impact on the markets with the news from Europe dominating market sentiment. The main data released this will be the preliminary GDP figures which are expected to show the market contracted by 0.2% confirming that the UK remains in recession.

The euro had an extremely poor day on Friday weakening to fresh 3.5 year lows against sterling, a two-year low against the US dollar, a 12-year low against the Japanese yen and a record low against the Australian dollar after the announcement that Spanish banking industry bailout had been approved by the EU finance ministers. This market reaction is the opposite to what happened when the bailout was first proposed which saw the euro strengthen and may well have been due to the lack of details outlined. Further worries from Spain came as Spanish officials suggested that the economy would not be out of recession until 2014 and that the region of Valencia is preparing to ask for a bailout from the central government. This negativity saw Spanish benchmark 10-year bond yields rise to record high of above 7.2% while the spread between German and Spanish 10-year bonds also hit a record high which highlights the concerns of investors' with the evident flight to safety. Out this week, German business climate sentiment figures are announced and services and manufacturing Purchasing Managers' Index figures across Europe will be released; however, the main focus will remain firmly on Spain and Greece once more as investors begin to worry about its ability to pay back its debt.

The US dollar had a mixed day on Friday as risk aversion dominated the market and investors looked for safer havens for their money; but was weakened due to investors speculating on the Federal bank loosening monetary policy in the near future. A busy week for data in the US includes advanced GDP which is expected to have dropped to 1.5%, the change in the number of homes pending sale and the number of new homes sold will also be announced. Other data released included the change in the number of people claiming unemployment benefits, core durable goods orders and the chairman of the Federal Bank is also speaking.

Elsewhere, poor Canadian Consumer Price Index released on Friday showed a sharper rate of deflation than the markets had predicted. The Japanese yen was one of the best performing currencies due to its safe haven status; while the Czech koruna and Hungarian forint were particularly weak. Australian PPI figures released first thing this morning beat expectations, the governor for the Reserve Bank of Australia is speaking later on this week and CPI figures will also be released. One of the main releases this week will be the interest rate decision form the Reserve Bank of New Zealand which is expected to be kept on old at 2.5%; while trade balance data is also released. Chinese manufacturing PMI could also potentially be a market mover as global risk sentiment often shifts if the figures released are significantly away from market predictions with commodity backed currencies particularly vulnerable. A busy week for Japan includes trade balance data, retail sales figures and CPI data; while Canadian core retail sales are also released.

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