Currency update, August 20: sterling regains lost ground

Published: 20 August, 2010

Currency update for August 20 from Smart Currency Exchange: sterling recovers on the back of stronger than expected retail sales data.

Currency rates, August 20:
EURO/GBP - 1.217
US$/GBP - 1.552
CHF/GBP - 1.604
CAN$/GBP - 1.617
AUS$/GBP - 1.746
ZAR/GBP - 11.392
JPY/GBP - 132.63
HKD/GBP - 12.075
NZD/GBP - 2.205
EURO/US$ - 1.275
HUF/GBP - 339.72

Sterling recovered yesterday to jump more than a cent against the US dollar after far stronger than expected retail sales data boosted hopes that the UK economy can maintain positive momentum in the third quarter. There was an expectation that sales would fall last month after World Cup related electronic goods sales tapered off. However, the figures surprised with a 1.1% jump which saw a surge in confidence in sterling. What pleased analysts was that there was no anomalous factors - such as Christmas spending - that could have artificially affected the figure.

Public sector borrowing figures were also down and data showed that money supply increased - this is good for growth, as it shows more money is 'flowing' through the system, which causes growth. However, mortgage lending figures were poor and so far this morning this has seen investor sentiment drop as concerns grow over the UK's growth prospects. This sums up the ebb and flow in sentiment over currency.

In the Eurozone, the single currency took a back seat yesterday as most of the data releases came from both the UK and the USA. However, the main release was German PPI purchasing manager data which came in better than expected at 0.5%. Sterling performed relatively well against the euro but fell short of breaking through the €1.22/£1 barrier. There is no real data out off the Euro zone today, but following poor US unemployment figures yesterday, the euro is likely to trade on poor sentiment and suffer against the US dollar.

In the USA, there was two key pieces of economic data released yesterday. Firstly, unemployment claims. After falling to 478,000 last week, the number of new claims for unemployment benefits unexpectedly jumped to 500,000. In addition, a key measure of manufacturing production showed a further than expected decline. As a result of this poor data, there are yet again concerns over the state of the US recovery and as such - the global recovery as a whole. Expect today's trading to revolve around risk aversion as investors look to avoid unnecessary risks to their investments.

Elsewhere, New Zealand credit card spending fell by 1.2% in July bringing the annual growth rate to a meagre 2.7%. Bank of New Zealand governor also effectively pleaded to firms to keep underlying inflation low and avoid hiking prices so that the Bank could avoid further interest rate hikes.

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