Sterling Unable to Maintain Rally

Sterling Unable to Maintain Rally

July 1, 2009

Well yesterday certainly started well for sterling as it crashed through 1.66 against the USD and pushed over 1.18 against the euro.

Unfortunately, as has been the trend for sterling this did not last; in fact the rally was reversing ahead of the UK GDP data for the first quarter. The release of the data only catalysed the reversal. GDP came in at -2.4% which is the sharpest decline for over 50 years bringing in the annual fall to 4.9%.

Naturally the gloom merchants jumped on this news as a snappy headline against the backdrop of recent greenshoots. The implication for sterling was to pull it back into the range bound trading ranges that we have been seeing over the last two weeks of 1.62-1.66 against the USD and 1.15-1.1800 on the euro.

Going forward the continually contracting GDP data is obviously a concern but in my eyes expected; however as unemployement numbers normally lag behing GDP data then we should see unemployment rising more sharply than expected. The GDP data also highlights a move away from current forecasts for the UK economy, especially by the chancellor who expects growth of 1.25% next year.

The weak data for the UK helped the USD in particular in morning trading as the rate retraced from 1.675 to 1.66 by later morning. US consumer confidence data dropped to 49.3 in June from 54.8 in May- a bad number which exasperated a move into risk aversion started by weak UK GDP data. This led to further USD gains as Wall Street dipped on a sombre note and pushed cable down to 1.64. GBP/EUR also fell below 1.17 helped by better than expected German unemployment data.

The Japanese Yen came inder pressure even in the light of a move into risk aversion, losing ground against the euro and the USD. Overnight the Tankan manufacturing survey rose but to a lesser extent than expected. USD/YEN pushed to 97.00 from 95.00 levels with large US buyers noted. In other news China’s manufacturing expanded for the fourth month in a row with PMI rising to 53.2 from 53.1 in May.

Look out for UK PMI data this morning at 9:30. It is likely to come in unchanged but another weak number following the GDP data could lead to a further slide for the pound to the lower end of the ranges.

Report by Phil McHugh

Receive daily currency rate updates and market commentaries direct to your e-mail daily FREE from Currencies Direct

Currencies Direct & Forex trading

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. Currencies Direct’s head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only. Currencies Direct and MarketClub Updates are compiled by Tom Nadir.

You can view new trading videos by clicking here, with my compliments.