The Pound to US Dollar exchange rate has fluctuated very slightly around the 1.547 mark today. The week began positively for equities and as a result the Dollar made some minor losses against its riskier rivals. Economic data is thin on the ground today for the pair and risk sentiment looks set to dictate the exchange rate.
The Pound is currently sitting in the awkward position of mediator between the Eurozone (2nd largest global economy) and the US (the largest global economy). On the one hand the Pound is viewed as an opportunity for risk appetite, with US investors funding Sterling as to avoid the over-bought Buck. But on the other hand, the Pound is seen as a safe haven from the Eurozone debt crisis; although the British economy faces problems of its own it benefits from sovereignty and as such has the ability to print its own money. This means Britain has no chance of defaulting on its debt even if close exposure to the Eurozone causes mass currency devaluation.
Therefore, Sterling benefits mildly from both risk appetite and safe haven flows.
Today Britain sold £700 million of long-term debt at a negative real yield. The auction saw bonds maturing in 2047 being sold with a 0.75% yield. Taking into account inflation, the real negative yield value is -0.116%. This substantiates the Pound’s position as a safe haven and elucidates the extent to which investors are avoiding the Eurozone (bar Germany).
Technical resistance at 1.550 has led some to believe that Sterling’s rally this week is only part of a blip in a longer-term trend patter that will see the cable pair test lows of 1.536 if today’s 1.544 is cracked in the short-term. But in this economic climate of exceptional volatility where political stimuli rules the day, technical trends are looking more unreliable than ever.
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