Currency update, August 19: recovery for sterling

Published: 19 August, 2010

Currency update for August 19 from Smart Currency Exchange: sterling rises to hit a daily high of $1.5689/£1.

Currency rates, August 19:
EURO/GBP - 1.213
US$/GBP - 1.552
CHF/GBP - 1.617
CAN$/GBP - 1.598
AUS$/GBP - 1.729
ZAR/GBP - 11.309
JPY/GBP - 133.14
HKD/GBP - 12.061
NZD/GBP - 2.178
EURO/US$ - 1.279
HUF/GBP - 337.64

Sterling recovered from three week lows against the US dollar after the Bank of England's minutes from their most recent monetary policy meeting eased market speculation that the Bank would loosen monetary policy further.

Sterling rose to hit a daily high of $1.5689/£1 after hitting $1.5498/£1 as speculation grew that the Bank had discussed adding further emergency funding to the economy. However, the Bank kept rates and the Asset Purchase Facility on hold and briefly discussed expanding the £200 billion in the economy if it was needed, but none of the rate setters voted for any expansion in the program. Lone member Andrew Sentance yet again called for a 0.25% interest rate hike for the third month in a row. That was the only data out yesterday of importance - out today there is key monthly retail sales data which is expected to show a slight decline after last month's World Cup related boost to retail sales.

In the Eurozone, it was a fairly quiet day for the region with most of the focus on the UK. However, the euro slipped against sterling and the US dollar after a report in German newspaper Der Spiegel stated that the austerity measures put in place to fix Greece are damaging the German economy. Euro dropped by 0.4% against the US dollar to hit $1.2805/€1 and it fell by around 0.2% against sterling to hit €1.2134/£1. In terms of data, German purchasing manager data came in at 0.5% - better than expected.

In the USA, the US dollar strengthened against the Japanese yen this morning as investors wait to see whether the Japanese government will take measures to rein in the strength of the currency. With yen in high demand when investors are looking for safe currencies to hold, the Japanese currency has appreciated in value as demand grows.

However, with an export led economy, a strong currency makes goods less attractive so there has been speculation that the Japanese government may devalue the currency with a round of Quantitative Easing. In the USA, there is unemployment claims data and manufacturing data released later on.

Elsewhere, Australian weekly wages figures rose 0.8% in the three months to May - the smallest quarterly increase in four years. This points to little inflationary pressure over the coming months and justifies the Central Bank's outlook that interest rates will stay on hold for some time to come. New Zealand producer prices rose for the second consecutive quarter and consumer confidence rose for the first time in three months.

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