Weekly Currency Update - GBP/USD

[Windsor02]

Hi All,

As promised here’s a brief update on what’s been happening with the US Dollar over the last week.

A sharp move higher in GBP/USD instigated by some hedge funds on the previous Friday’s thin NY session, gained some traction last Monday when both Barclays and HSBC revealed astounding £3 billion first half year profits. Who would have thought this possible at the start of this year as the recession started to bite? True, Barclays performance owed everything to their master-stroke in taking over the rump of Lehmans and nothing to do with the performance of their domestic retail operation, but traders in the FTSE and the Pound could both see the future economic benefits of UK banks quickly rebuilding their balance sheets.

The CIPS manufacturing survey added fuel to the fire with its first ‘expansionary’ reading, above 50, since March 08, sending GBP/USD to 1.70. Other bank results were not quite so encouraging with Northern Rock turning in a £724 million loss and still struggling with the legacy of their aggressive lending policies of previous times and Lloyds posting a £4 billion loss due mainly to its takeover of the troubled HBoS. However, this had no impact on GBP/USD which seemed to pay more attention to the service sector survey which indicated the 3rd month in a row of expansion. In terms of these respected and forward looking surveys, the pattern this year has been clear, the UK versions have been the fastest to pull out the slump and the first to post an expansion. The worries about the UK’s heavy reliance upon the financial/banking and the housing sectors have been somewhat allayed by the UK bank’s performances and the recovery in the housing market. All of this promises to help rebuild the precious commodity of confidence in the consumer and the economy as a whole. By Thursday all these upbeat thoughts inspired the Times front page editor to suggest that the UK may be on the cusp of an economic comeback. Cue the entry of the bad guy, stage right, as the Bank of England Governor, Mervyn King, announced a £50 billion extension to their quantitative easing programme, on the grounds that the recession had been deeper than first estimated and that the recovery looked to be fragile.

On Friday, the slightly less encouraging US data was countered by a marked slowdown in the number of jobs lost, only 247k, compared to June’s 443k, and a reduction in the unemployment rate from 9.5% to 9.4%.

USD Movement – High’s & Low’s of last week (03/08/09 – 07/08/09)
High’s: 1.7044
Low’s: 1.6650
A difference of: 2.37%

Difference on £200k
High: $340,880
Low: $333,000
Difference of: $7,880

Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely you are to make your money go further.

A further update will be added next week.

Regards




Jon Sermon
HiFX