Foreign Exchange: Pound Rallies Against US Dollar

The Pound yesterday rose strongly against the US Dollar and also made gains against 16 of the most actively traded currencies.

Foreign ExchangeUnexepectedly, UK retail sales jumped in July by roughly four times initial estimates to record the biggest increase in five months, according to a report from the Office of National Statistics. No doubt this will be welcome news to the Government as there is some concern that the second quarter growth figures will represent the peak of the recovery this year.

The Bank of England is predicting that consumer spending will keep growing at a “modest rate” over the coming months, albeit the governor Mervyn King has confirmed that policy makers have discussed increasing bond purchases to support the economic recovery as the government tackles the budget deficit.

Against the US Dollar, the Pound rose up from the key support at $1.55 for a second day in a row. It rallied 1% to a high of $1.5660.

The Pound against the Euro is testing resistance close to the 1.22 level – is it time to take advantage as the Pound strengthens against the Euro?

This being helped by a report showing that Britain posted a smaller budget deficit in July than expected, as the UK economy surged in the second quarter.

Expectations were that net borrowing would be £4.8 billion but instead met borrowing was only £3.17 billion.

The better than expected economic data helped boost UK stocks which helped the Pound also benefit against the lower-yielding currencies like the US Dollar and Japanese Yen.

Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd, said that “UK data today showed the economy is more robust than some people might have expected. That should support the Pound, at least in the near term.”

The Pound has rallied 5.1% against the Dollar since the May 6th general election.

Despite all this Sterling fell back towards $1.5540 against the US Dollar last night as investors moved  to the relative safety of dollar-denominated assets.


There are concerns that Europe’s economic recovery is waining and as a result the Euro dropped for a second day in a row against the US Dollar, falling towards $1.27. It also fell against 13 out of the 16 most actively traded currencies, as worries grow that austerity measures in Greece will hurt the economy and drive unemployment to 70% in some areas of the country.

Antje Praefcke, a currency strategist at Commerzbank AG, said that “euro concerns are still lingering in the background. The impact of the fiscal adjustment in Europe is real and will be felt for years.”

Paul Robson, a senior foreign exchange strategist at Royal Bank of Scotland Group Plc, said that “the euro continues to struggle to make upside progress as periphery woes linger. This leaves Monday’s $1.2734 low as an obvious focus.” Elsewhere, U.S jobless claims jumped to the highest level since November, while a regional manufacturing index shrank for the first time in a year.

Market Analysis by Adam Solomon, Torfx

Any opinions expressed in this document are aimed at helping readers understand foreign exchange market conditions and developing trends. Readers are wholly responsible for their own trading decisions.


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