Market Summary 22nd October 2009
After coming under huge pressure in the last six weeks, Sterling stages a remarkable turnaround to post it biggest weekly gains in over a year against a host of currencies.
Sentiment turned on suggestions that the asset purchase programme which the BOE have been undertaking since the start of the year is beginning to work. This was offered further credence by the BOE minutes released on Wednesday where the MPC voted unanimously to keep both interest rates and QE expansion on hold for October. Yet they have left the door open for further expansion down the line but in the short term it seems the market was intent on offering Sterling some relief and was more than happy to take this as Sterling positive.
The long term health of Sterling remains a hot topic. To this end the state of the public finances and the ability of the financial sector to recover will be the major factors in determining Sterling’s future.
The US Dollar has also come in for a hard time in recent weeks but with sentiment in the equity market beginning to turn, this may lead to a default into the greenback. Third quarter earnings have so far come in slightly better than expected. However it is clear that these figures are not down to increased sales but rather a product of the extreme cost cutting we have seen in the last 12 months. This is unlikely to offer the market much reassurance and a correction in equities seems overdue. If this is the case, expect the JPY, USD and Euro to gain in the next few months.
For more information please contact David Lamb, Head of Treasury Services at No1 Currency on 0131 561 8416
