Sterling recovered against euro following construction data

Published: 05 October, 2010

Currency exchange rates daily analysis for October 5 from Smart Currency Exchange.

Currency exchange rates daily analysis for October 5 from Smart Currency Exchange.

Sterling recovered against the euro on Monday as better than expected construction data helped investors feel more confident in the UK recovery.

Construction PMI data showed that construction activity picked up in September, rising to 53.8 against an expectation of a fall to 51.6.

Concerns over the 'peripheral' European countries also saw the euro suffer, but the atmosphere is still nervous ahead of Thursday's Bank of England interest rate after last week's comments by Adam Posen. The Bank of England policymaker made clear last week that a fresh round of Quantitative Easing should be used to pump more money into the economy and provide stimulus for growth.

This contrasts with Andrew Sentance, who has been voting for a 0.25% rise in interest rates for the last 4 meetings. Either way, the meeting has the potential to cause significant movement. Key house price and service sector data is released today also.

Currency rates:
EURO/GBP - 1.153
US$/GBP - 1.580
CHF/GBP - 1.535
CAN$/GBP - 1.619
AUS$/GBP - 1.652
ZAR/GBP - 11.101
JPY/GBP - 132.34
HKD/GBP - 12.259
NZD/GBP - 2.134
US$/EURO - 1.370
HUF/GBP - 316.24

In the Euro zone, despite jumping in overnight trade after strong demand from Asia, the single currency slipped by 0.9% yesterday against sterling and US dollar. Concerns over the economies of Portugal, Ireland and Greece saw confidence slide. The Irish government yesterday said that the Irish economy will grind to a halt this year, and Greek budgetary forecasts show that the country expects a contraction of 2.6% next year followed by a 4% contraction in 2010. It seems that after a month of inexplicable euro strength, the markets seem to have recognised that there are still significant issues being faced.

In the USA, concerns still remain over the widely expected fresh monetary easing that is expected over the next few weeks. However, the balance of power shifted back towards the US dollar as the euro lost ground after the budgetary and growth announcements detailed above. There was some respite as data showed sales of previously owned homes rose to a 4 month high, but the effect was not long lived. The US dollar may have recovered some ground against the euro, but it slipped to a 2 ½ year low against the Swiss franc and again hovered near to a 15 year low against the Japanese yen.

Elsewhere, tomorrow sees the Australian interest rate decision which is widely expected to see the Australian central bank raise interest rates by 0.25% for the first time in 5 months. This would bring rates to 4.75%, and a Credit Suisse gauge of expectations has 52% of market participants pricing this in already. Demand from China for commodities has been driving the currency - call in now to ensure you do not miss out, as this could see the AUS dollar strengthen significantly against sterling.

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