In the past few weeks we have seen Sterling talked down and suffer because of the pessimistic outlook for the short-mid term. This negative outlook has been based on a number of factors such as day-to-day data release, possibility of further extensions to policies which are there to stimulate the economy such as Quantitative Easing. But all of this seems to be more speculative rather than ’set in stone’. So until a data release actually happens or a policy is actually extended, it is all speculation by traders as to what is actually going to happen. The pound has suffered over the past few weeks, reaching over a 6 month low against the Euro and nearly a 5 month low against the USD, partly due to the speculation and partly due to policymakers such as Mervyn King, talking down Sterling.

Exaggerated outlook shows some recovery

Sterling however has made a bit of a recovery this week as it seems that although data is still coming in as negative, the speculative figures in which traders and investors are hedging their bets, are actually showing better than expected results. So we are starting to see the risk aversion from investors, turn slightly into risk appetite for sterling, as the better than expected data shows sterling as cheap.

Public Net sector borrowing data released on Tuesday came in at £14.8bil, but was forecast at £15bil, and Money Supply which shows all Sterling in circulation was up 0.7% which was 0.2% better than expected. Sterling strength was also aided by the sale of $379.2 mil worth of Barclay’s shares. A sale of this amount of currency is likely to move markets. The U.S. release of worse than expected Housing and Producer Price data, meant that the U.S Fed reserve would be likely to hold interest rates at their low levels for longer than expected, so a lot of sterling gaining against USD is due to USD weakness. 

Today

Today sees the release of the Bank of England minutes from the last Interest Rate Decision meeting (09.30hrs). It will give an indication on the policy maker’s views on further Quantitative easing, and other policies which are in place to try and stimulate the economy. We have seen on Tuesday that the Sterling in Circulation has improved, so this should give an indication that policies in place are now starting to stimulate the economy, therefore there may not be a further need to extend. A view to extend QE would certainly weaken Sterling, where as a view to no need for extension could see Sterling rally further. All this data should give us some indication as to whether the UK will see its first growth since we technically went into recession. This will be shown via GDP figures released this Friday the 23rd, where a figure of 50 and above shows a growth, and below 50 shows a decline.

At 09.00 this morning the pound was up on the day at: $1.6474, €1.1016, 12.1550 ZAR, 149.36 JPY, 11.41 SEK, 1.7774 AUD, 1.6645 CHF, 1.7311 CAD and EUR/USD 1.4953.

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