Foreign Exchange Rates : GBP/USD Breaks to 12-Month High

March 1, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Rates : GBP/USD Breaks to 12-Month High

Appetite for risk continued to pick up during yesterday’s session, with the benchmark S&P 500 index gaining a further 0.5% on the day, following Friday’s gains of over 1%. It appears that the decisive action by the international community to call for Colonel Gaddafi to relinquish power in Libya has increased confidence that civil unrest will soon come to an end in North Africa. The S&P 500 is now approaching its highest level since the start of last November.

The increase in risk sentiment has caused the Yen and Swiss Franc to give up ground, whilst the US Dollar has also suffered, weakening to its lowest level for over 12 months against Sterling, to currently trade at above 1.6300. High-yielding currencies, including the Australian Dollar, South African Rand and New Zealand Dollar are likely to benefit from the up-tick in appetite for risk.

Overnight, Australia’s central bank opted to maintain interest rates at 4.75%, as analysts expected. Some analysts had suggested that the RBA might surprise the markets by hiking rates in order to cool inflationary pressures, so the markets response to the hold in rates has the potential to hurt the Australian Dollar in the near term, especially as the bank’s accompanying statement was of a far from hawkish tone.

Yesterday’s Canadian GDP figure for quarter 4 came out significantly ahead of expectations of 2.9% at 3.3%, lending support to the Canadian Dollar and increasing the likelihood that the Bank of Canada will opt to increase interest rates from 1% at today’s policy meeting. The Canadian Dollar continues to benefit from top-of-the-range oil prices.

Meanwhile, in the UK, the Pound started the day on a positive foot with the results of February’s Nationwide House Price Survey confirming a month-on-month increase in house prices. Analysts had expected the survey to show that UK property prices had fallen by 0.2% on the month.

Positive German employment data, released a few minutes ago, will be likely to help the Euro. A CPI inflation figure of above the expected 2.4% might give the Euro the impetus to break towards 1.40 against the US Dollar.

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