Can the Gain in Sterling be Maintained?
7, September 2009
Sterling started on a weak note at the beginning of last week as concerns grew over the effectiveness of Quantitative Easing. With the Bank Of England raising the amount of QE last month by another £50 billion there has still been little real effect in the lending patterns of UK banks which is concerning.
Aside from this the spiraling public debt levels and confirmation from the OECD (The Organisation for Economic Cooperation and Development) that the UK will lag other major economies in a recovery was all weighing on sterling. However we did see gains in sterling come back into play on Thursday and Friday; can this continue?
This week we should see lots of price action in sterling with Industrial Production, producer prices and RICS house price balance. The main event this week will be the interest meeting from the Bank Of England. It is not expected that rates will move even in the light of a call for another cut! However the tone of the Bank Of England will be scrutinized for future action in relation to further QE.
GBP/EUR needs to get back above the psychological 1.15 level before we can relax and feel more comfortable and GBP/USD over 1.65.
On Friday US non-farm payrolls came in better than expected coming in at -216k; this boosted the move into risk appetite and equities rallied and the USD and JPY weakened. It was not all good news for the US economy as the unemployment level rose to 9.7% still enforcing a weak labor market in the US. Should be a little choppy today as we have a US holiday.
Report by Phil McHugh.
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