Positive service sector figures sees sterling gain ground

Published: 06 April, 2011

Sterling benefitted from some better economic data here in the UK and negative sentiment elsewhere.

Currency rates - April 6

EURO/GBP - 1.1441

US$/GBP - 1.6352
CHF/GBP - 1.5054
CAN$/GBP - 1.5710
AUS$/GBP - 1.5755
ZAR/GBP - 10.9260
JPY/GBP - 139.477
HKD/GBP - 12.7133
NZD/GBP - 2.1117

SEK/GBP - 10.2991
US$/EURO - 1.4286

Here in the UK we saw the release of a better than expected figure for the services purchasing managers index. This rose to a 13 month high in March. As services are such a key part of the UK economy the market reacted positively with sterling gaining across the board. We will have to see if this increase in the index results in an actual increase in the size of the UK economy for the first quarter of 2011. One good day shouldn't be taken as a change in sterling's fortune.

Portugal's debt was downgraded further and Spain's unemployment increased to 4.3 million. So not a good day for the periphery states of the euro zone. The main topic of discussion is tomorrow's interest rate announcement by the European Central Bank - 0.25% is the expected increase. No increase will see the euro lose ground; an increase greater than 0.25% will see the euro gain. So we could be in for some rapid movements in exchange rates as events remain unfold.

The minutes of the last Federal Reserve meeting were released and weren't quite as bullish on the ending of quantitative easing and increasing interest rates as expected. Also the US service activity data released didn't meet expectations. These were negative for the US$. But overall the US economy is moving forward with reasonable momentum. Housing sales is still the one area that is showing significant problems.

The Chinese increased interest rates by 0.25% as they continued to try and control the growth in their economy and curb inflation. Neither of these will be easy to achieve and increased Chinese interest rates negatively affect the commodity backed currencies. The Australian dollar pulled back from a 29 year high against the US$.

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