The pound generally lost value last week after some poor trade balance figures showed that despite a weakening currency the UK is importing far more than it exports. The highest value for a number of years has cast doubt on the prospects of an export led recovery.
Sterling has found support against the Dollar and Euro this morning as the consensus from the major banks recent technical reports have stated that the pound is undervalued and this might be a good time for investors to instigate new long positions by buying the pound against both the Dollar and the Yen.
“As expected, sterling has recently pulled back against the US dollar. We judge that scope for sterling to weaken further is limited unless equity markets drop sharply and that the current weakness is an opportunity to establish long positions particularly against the Dollar and Japanese Yen.” Balclays capital weekly Forex report.
The Swiss franc softened against the euro on today after proposed new banking rules published on Sunday were less severe than expected. This has combined with encouraging growth data from China to buoy risk appetite.
Basel’s new capital requirements set out a requirement for banks capital ratios. They are designed to make sure that banks have enough capital to weather any further financial storms. Market expectation were for them to be relatively harsh and for some European banks to fail. This saw the Euro weaken slightly last week.
“The banking rules coming out of Basel were probably not as bad as first feared with some of the uncertainty removed and the timeframe for the banks to get their houses in order quite generous,” Richard Hunter, head of UK Equities at Hargreaves Lansdown Stockbrokers said.
Banking stocks have led the FTSE higher again and this has helped to raise the pound up from the lows we saw last week.
Indian interest rate swaps shot up on this morning after industrial data showed surging economic activity and strengthened the case for higher interest rates to rein in price pressures. The Indian Rupee has gained strength on the back of this news as traders tend to buy currencies with a higher yield prospect.
The rate against sterling has dropped to 71.01 GBP/INR down from the market rate of 1.7230 GBP/INR last week. Currency transfers have picked up from the banking sector after unilateral talks between both Indian and British banks to reach an agreement on merging the tow sectors.
Looking forward to this week, this biggest release will be UK CPI inflation data tomorrow morning at 9.30 GMT. The gauge of inflation is used to judge future interest rate expectations in the UK. This is followed swiftly by the German ZEW index which is expected to strengthen the Euro as business confidence in Germany is considered very high. Expect some movement tomorrow as currency transfers accelerate due to compounding interest rate swap and stock market activity.