Currency update, August 17: sterling regains lost ground

Published: 17 August, 2010

Currency update for August 17 from Smart Currency Exchange: sterling reclaimed some of the ground lost against the US dollar last week, rising 0.4% yesterday to hit $1.5665/£1 after risk sentiment improved in trading yesterday.

Currency rates, August 17:
EURO/GBP - 1.216
US$/GBP - 1.565
CHF/GBP - 1.625
CAN$/GBP - 1.628
AUS$/GBP - 1.736
ZAR/GBP - 11.350
JPY/GBP - 133.48
HKD/GBP - 12.162
NZD/GBP - 2.201
EURO/US$ - 1.286
HUF/GBP - 338.47

Against the euro, sterling slipped after house price data showed that the housing market had faltered in the last month. Data from Rightmove showed that prices slipped by 1.7% against an expected gain of 0.6%. This saw sterling drop by 0.4% against the euro as additional positive data added to the single currency.

Aside from the house price data, it was a relatively quiet day for sterling. However, there is key inflation data out today and retail sales data released later in the week with the most important release being Wednesday's Bank of England minutes likely to cause the most market movement. What most investors are looking for is whether any of the Monetary Policy Committee members joined Andrew Sentance in voting for an interest rate rise, as he did last month.

In the Euro zone, sentiment towards the region improved yesterday and risk appetite improved after the European Central Bank revealed that it had bought minimal government bonds from the region last week. This encouraged financial markets, as it shows that there is a demand for European government bonds despite serious concerns over the ability of many governments to repay debt. As a result, the euro experienced higher demand as investors looked for riskier assets to invest in. In terms of data, inflation data came in as expected at 1.7%.

In the USA, the boost in risk appetite in the Euro zone saw the US dollar drop off against sterling and the euro. Global stock markets recovered as investors looked to pick up relatively cheap stocks and shares after last week's risk aversion devalued stock markets.

Elsewhere, data showed that there was a net overall outflow of capital out of the USA in June. One of the major reasons was that the Chinese government has started buying Japanese government over the US equivalent as it feels that Japanese bonds are a lot less risky than their US counterparts. This general lack of interest for US investments is not great news for the US dollar.

Elsewhere, minutes from the Reserve Bank of Australia's August interest rate meeting showed that the current interest rate levels were 'still appropriate' given the increased uncertainty in the global outlook and the cooling demand in the domestic market. Interest rate hikes that started in October have filtered through into the 'real economy' and as such, credit and borrowing is down.

* Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service.

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