Poor economic indicators for the UK and the spectre of an unprecedented triple-dip recession have worn on the Pound in recent weeks. However, after a string of losses the Pound posted its strongest weekly gain against the US Dollar for over eight-months following comments made by Bank of England Governor Mervyn King.
The Pound Sterling Exchange Rate was in the region of 1.1669 against the Euro as of 09:55 am
After King asserted that ‘Markets determine the level of exchange rate, not [policy makers]’ Sterling strengthened by 0.9 per cent against the Euro and recorded a weekly gain of 1.3 per cent against the US Dollar.
In response to King’s remarks foreign exchange strategist Jonathan Webb stated: ‘Given how big the moves down have been in Sterling it’s probably not surprising that we were due a correction. King’s comments caught the market wrong footed when the Bank of England have been persistently talking about the need for a weaker currency.’
This morning the Pound has posted further gains against several of its most traded rivals as some much needed pieces of positive UK data were released.
Firstly, the Market index of household finances increased from February’s 37.7 to 39.3 in March, a positive sign for UK consumers. The report also showed that workplace activity, job security and incomes among private-sector workers have boosted financial expectations for the year ahead.
As Markit’s chief economist comments: ‘Households are clearly seeing no signs of a triple-dip recession. The increase in workplace activity, therefore, bodes well for the economy to have grown in the first quarter […] Households reported that their finances deteriorated at one of the slowest rates since mid-2010. However, the improvement is only being felt in the private-sector, with public-sector employees reporting an increased rate of deterioration in their finances.’
Secondly, Rightmove’s monthly house price index showed that residential property asking prices were up by 1.7 per cent from February and were 1.2 per cent higher than in the same period of 2012.
The following statement was issued with the housing data: ‘In today’s turbulent world where economic crises seem more likely to re-appear than disappear, any market upturn will take longer to build home-mover confidence, to the point that it starts to feed through to actual transactions. However, with new sellers asking more than ever before, as we enter the traditionally busy spring market, and an expectation among home-movers of price stability, or growth, there is now a bedrock upon which confidence and momentum appear to be building.’
As both surveys hint at strengthening consumer confidence the odds of the UK side-stepping a triple-dip recession have improved slightly, but other factors were also responsible for the Pound’s gains.
Sterling was able to hit its strongest level for over a month against the Euro largely as a result of the common currency broadly weakening following a new wave of fiscal turmoil.
As an unprecedented levy on Cypriot bank deposits reignited Eurozone crisis fears and inspired risk-aversion, the Pound gained by 1 per cent on the common currency. Further news out of Europe could see Sterling continue to climb in the hours ahead.
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