GBPEUR/GBPUSD

The Pound rallied to the highest level against the Dollar in three months yesterday, breaching $1.68 in London, as stocks rallied worldwide amid increased demand for higher-yielding assets. The UK currency also peaked at 1.1230 against the Euro, the highest level in seven weeks, before a partial correction later in the day.

UK stocks rose for a fourth straight day yesterday, with the FTSE 100 Index poised for its longest stretch of gains since September, after the Group of 20 nations agreed to maintain current stimulus measures. The FTSE 100 climbed 1.4% in London and the gauge has now rallied 48% from the lowest point this year on March 3rd.

Risk appetite has improved steadily through the course of the year, amid signs that government stimulus measures and record low interest rates are helping to drag the global economy out of the recession. Nick Serff, a market analyst at City Index Ltd, said that the market's strong "after the G-20 minister announced over the weekend to keep stimulus in place. Continued strength in commodity prices, and Wall Street managing to shrug off the weaker jobs data could underpin bonuses going forward."

The increase in risk appetite has helped propel Sterling higher against the U.S Dollar, but the UK currency may come under some scrutiny ahead of the Bank of England's quarterly inflation report on Wednesday. Policy makers will probably announce that the economy is stabilising, further enhancing speculation that the Central Bank is slowing down quantitative easing.

The Pound rallied strongly against the majors last week, after the BoE said on November 5th that there are signs the economic recovery is gathering pace, after expanding the asset-purchase program by less-than-expected. In the build up to the midday announcement, speculation intensified that policy makers would extend the quantitative easing policy by £50 billion, after the latest quarterly figures showed that Britain remained in the grip of a recession.

Henrik Gullberg, a strategist at Deutsche Bank AG, said that "the market is determined to continue this risk appetite rally. The Pound is still undervalued, especially against the Euro. Every time we have positive news, that means a move towards fair value." The Pound rallied 1% against the Dollar yesterday, but remained largely unchanged against the Euro, following a sharp rally earlier in the day.

The Office of National Statistics reported last week that UK manufacturing rose 1.7% in September, more than initial predictions of a 1% gain. A government report on Wednesday may show that the number of people signing on for jobless benefits rose by 20,000 in October, the slowest increase since May 2008.


EUR/USD

The Dollar weakened to the lowest level in 15-months against the currencies of major U.S trading partners, after the G-20 agreed to maintain economic stimulus measures, encouraging investors to buy higher-yielding assets. The Euro strengthened versus the Dollar, after last week's 0.9% gain, as Germany's exports climbed in September by more than expected.

German industrial output also rose beyond initial estimates, as factories ramped up production of investment goods to meet export demand. Output increased 2.7% from August, when it advanced 1.8%, and growth in Europe's largest economy is gathering momentum, after emerging from the recession in the second quarter.

Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd, said that "the euro-zone economy is performing better than economies in the U.S and Japan. Interest rate differential are also in favour of the Euro." The U.S currency also declined, after the International Monetary Fund said that traders are probably using the Dollar to fund carry trades and it may still be overvalued.


Data Released 10th November

U.K 00:01 - BRC Retail Sales (October)

U.K 00:01 - RICS House Price Balance (October)

U.K 09:30 - DCLG House Prices (September)

U.K 09:30 - Trade Balance (September)

GER 10:00 - ZEW Index (November)


written by Adam Solomon

Labels: daily-insight