Monthly Currency Update - GBP/USD September 09

Hi All,

Here is an update of what’s been happening in the Currency Markets throughout August with the USD.

Following the Bank of England’s decision to extend their programme of quantitative easing, Sterling remained under pressure at the start of the month, in anticipation/fear of some nasty downward revisions to the Bank’s politically independent economic forecasts within their quarterly inflation report. GBP/USD sank to 1.64 despite the BRC reporting a healthy 1.8% rise in retail sales in July (the good and bad weather helping apparently !!) and the forward looking RICS housing survey making great strides back towards a positive number, which would signal the majority of surveyors were seeing price rises. The latter’s -8% reading being the best since August 2007. Ahead of the inflation report, the UK unemployment stats revealed another jump in the rate to 7.8%, the worst since 1996, and a total of 2.4 million unemployed, the worst since 1995.

There was good news on the UK official July retail sales which maintained a run of positive numbers at +0.4%, taking the annual rise to 3.3%. This potential boost for Sterling was undermined by the Government’s finances falling into a massive £8 billion deficit in July, from a £5 billion surplus in June. This was the first July deficit since 1996 although you might ask what else would you have expected when the Treasury are doing their utmost to stimulate us out of a deep recession. Anyway, it made Sterling wobble again.

The main influence on the Dollar was again the stock markets with the collapsing Chinese market (down 20% in the past month) dragging the other main markets down, though no where near the same extent, keeping the Dollar popular early in the week. By Friday it was all change again when Ben Bernanke suggested the US was on the verge of recovery and that the prospects for near term growth were good. Equities and oil rose strongly on these comments.

The UK data during the week could easily be read as supportive of the more negative view of the UK economy with a rise in UK mortgage approvals being offset by a fall in net mortgage lending and another decline in lending to businesses and consumers continuing to pay off debt. Another healthy rise in the Nationwide house price index (+ 1.6% in August) took the decline in the past 12 months to just -2.7% but analysts everywhere are very concerned about the lopsided nature of this recovery, concentrated as it is in the south and on larger properties, and continue to sound the ‘it will never last’ type warnings.

However the most damaging data of the week (for Sterling) was the large fall in business investment in Q2 (-10%). This could only mean one thing for the forthcoming revision of Q2 UK GDP on Friday, it was going to be downgraded. But Friday revealed GDP had been revised to a slightly better -0.7%, still way off the positive figures across the Channel, but at least moving in the right direction, and this helped the Pound recover some ground.

Current Central Bank Rates:

US: 0.25% - Federal Reserve Bank (next meeting 22nd September)
UK: 0.50% - Bank of England (next meeting 10th September)

GBP/USD Highs & Lows of August:

High: 1.7044
Low: 1.6153

A movement of: 5.52%

Difference this would make on £200k

High: $340,880
Low: $323,060

A difference of: $17,820

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.

Regards




Jon Sermon
HiFX