Currency Exchange Rates Pound Makes Moderate Gains

April 11, 2011 - Written by John Cameron

STORY LINK Currency Exchange Rates Pound Makes Moderate Gains

POUND STERLING

The Pound came under selling pressure in trade this morning due to the Independent Commission on Banking holding a cautious outlook for the largest financial institutions in the U.K. The commission has suggested that the largest banks in Britain should increase their capital whilst separating their consumer banking units into separately-capitalized subsidiaries. They went onto say that “a retail ring-fence” would help strengthen the retail banking operations whist protecting depositors’ funds.
The pound has gained against the majority of most actively traded currencies this afternoon as markets tentatively start to raise interest rate expectations. Bank of England hawk Andrew Sentence has said that monetary policy will need to be gradually adjusted given accelerated inflation, Sentence went onto to suggest a series of rates hikes in order to bring inflation back in line with the target 2% level.
Markets will pay close attention to CPI figures due for release from the UK tomorrow morning at 0930. Most of the current price action is being dictated by inflation and the subsequent interest rate expectations and we don’t expect tomorrow to be any different.
NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE


US DOLLAR – The Pound Dollar exchange rate (GBP/USD) is 1.6386

The GBP/USD market has retested resistance at 1.6428 and rejected in trade this afternoon. The main economic releases of note for the US Dollar this week are retail sales and consumer prices for March. Traders have been speculating on monetary policy over the past fortnight and it would seem that markets have scaled back expectations for a rate hike in the near term.
NEAR-TERM OUTLOOK – USD NEGATIVE


EURO – The Pound Euro exchange rate (GBP/EUR) is 1.1343

The Euro has failed to gain ground today rejecting 6 month support at 1.1285. The market is consolidating ahead of CPI figures due from both the UK and the Eurozone in the coming days and it is clear that traders don’t want to bet too heavily into the Euro with uncertainties ahead and ongoing concerns associated with the Sovereign Debt crisis.
NEAR-TERM OUTLOOK – NEUTRAL


AUSTRALIAN DOLLAR – The Pound Australian Dollar exchange rate (GBP/AUD) is 1.5545

The Australian Dollar has seen a day of consolidation, the pickup in risk appetite driven by a ceasefire in Libya seems likely to drive the currency back towards all time highs. The Aussie Dollar has easily outperformed every other major currency in the aftermath of the global recession. It is clear that investors’ appetite for returns has once again overwhelmed their taste for safety.
NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE


NEW ZEALAND DOLLAR – The Pound New Zealand Dollar exchange rate (GBP/NZD) is 2.0946

Much like the Australian Dollar the Kiwi Dollar has followed suit and benefited from a pickup in risk appetite. New Zealand Finance Minister Bill English has commented on the aftermath of the worst earthquake in 80 years and said that additional monetary support was no longer “needed” as he expect the reconstruction efforts in Christchurch to boost business confidence. Mr English went onto state that the fundamental “outlook is pretty good” despite potential for household spending to fall back through 2011 as the region copes with the aftermath of the natural disaster.
NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE


CANADIAN DOLLAR – The Pound Canadian Dollar exchange rate (GBP/CAD) is 1.5645

Much like the Euro the Canadian Dollar is benefiting from heightened interest rate expectations the market has priced in a 90bp rise over the next 12 month period. This expected yield has seen gains in recent days and we would expect the CAD to be supported by this ahead of the BoC rate decision this week.
NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVIVE.

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