by Jon Beddell
After having drifted over three cents lower from the July 15th peak Sterling put on nearly a cent on Thursday after retail sales for June beat expectations. The Pound was quick out of the blocks on Friday as the much awaited European bank stress tests showed only 7 banks failing to make the cut, with all the UK banks passing. That helped Sterling put on another couple of cents as traders saw good reason to buy the pound and move money away from the safe haven of the US dollar. Second quarter GDP figures also helped the market rally as they showed the UK economy grew at 1.1% in the second quarter, an improvement on the 0.3% first quarter figure and much better than analysts had expected.
The dollar has weakened against almost all major currencies since Friday’s stress tests. Simply by passing without incident the tests have allowed investors to increase their appetite for risk and diversify away from the dollar. A heavy week for US corporate earnings announcements could put more pressure on the dollar if companies meet or exceed earnings expectations. Perversely, positive news on the US economy tends to dent demand for the Greenback as it spurs investors to become bolder and search for higher returns elsewhere.
The technical outlook is positive. The Pound bounced right off trend support at 1.51 last week and has since gone on to make new highs. A key test is the 1.5525 level that marked the high in April. We have already tested this today, and at time of writing Sterling has not managed to capture the level. A close above 1.5525 would give a further technical boost, making 1.5820 the new focal point (that was the late Feb’ peak).
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