The currency blog

Sterling is rallying this morning in the markets against most of the major currencies except the Japanese Yen. This morning mortgage approvals in the UK hit its highest level for 18 months giving sterling a good start, however net lending rose by less than expected and yet sterling still rallies- the question is why?

With the Bank of England decision next week and recent reports and sentiment pointing towards an expansion of QE then you would think that sterling would be on the back foot. Against the euro the pound has pushed through 1.11 and yesterday held firm against USD strength across the market to keep cable above 1.64. It could be that the opinion of Goldman Sachs that sterling is undervalued is psychologically underpinning the pound. It also may be the case that the worst is now behind the UK economy and GDP in quarter 4 will finally show an exit from the recession and a start to prolonged albeit slow growth.

Next week will be telling and not for the first time what looks like a sterling rally could fall off a cliff after the BoE meeting.

The euro continues to lose ground against the USD pushing as low as 1.4680 before creeping back above 1.47. However German unemployment just released has come in better than expected- declining by 26k against an expected rise of 17k whilst the unemployment rate declined to 7.7% from 8.0%. This could offer the euro some relief after taking a hit over the last few days.

In other news the Royal Bank of New Zealand left interest rates unchanged at 2.5%. The Reserve Bank of Australia are widely expected to raise rates next week by 25 basis points; however surprisingly the commodity/high yielders are on the back foot with ZAR, AUD, CAD and NZD all losing ground yesterday. This could signify less confidence in the markets and a potential turn from USD weakness.

Discuss on this on the Currency Exchange Forum