Pound moves to 11 month high on trade weighted index

Published on in Currency Exchange News by

Sterling started the European session yesterday moving forward having made gains during Asian trading. Sterling’s trade weighted index against a basket of currencies hit an 11 month high, in particular a 6 month high against the US dollar and 1 month high against the euro.

Data compiled by the Bank of England that tracks the pounds value against a basket of currencies held by the UK’s main trading partners rose to 82.7, the highest since September 2009.

The rise came mainly from broad based risk appetite as European shares soared after HSBC reported first half profits doubling to £7bn causing their share price to climb by 5.2%. Given the UK economy’s dependence on the financial services sector, any rise in this area was followed by with investor confidence. UK shares rose across the board by 2.5% with the pound following suit.

The pound rose as a many analysts are beginning to adjust their view on the UK economy. UK manufacturing expanded for the 10th consecutive month, despite being below last month’s figure of 57.6, the posted figure of 57.3 was better than expected. British economic data has beaten economists’ expectations since April, according to an index of economic surprises compiled by Citigroup Inc.

By 5.00pm the pound was up 1.2% against the US dollar, hitting a high of $1.5904 from session open of $1.5722. Against the euro it rose to it’s highest since July 5th to €1.2110 at 12.30pm roughly 0.8% up from the open, before retracing gains to finish at €1.2050

The euro made gains throughout the day against a broadly weaker dollar to rise to a high of $1.3190 the highest since May 3rd, breaking a key technical level around $1.3125.

The pound extended gains after it closed above its 200-day moving average around $1.5542 on Friday, while making a clear break of $1.5636, the 50 percent retracement of its peak-to-trough move between August 2009 and May this year.

Technical analysts said the pound’s next target was $1.5970, the 61.8% retracement of the November 2009-May 2010 fall.

The pound’s value has a lot of negative news priced in and as the data releases improve, the bad news dries up, meaning there are less traders who strongly dislike the pound. The commodity Futures Trading Commission showed the number of wagers by hedge funds and other large speculators on a decline in the pound against the dollar had dropped significantly.

If the data releases continue to improve then the pound will appear cheaper and cheaper. The only potential fly in the ointment is whether the economy can weather the restrictive austerity plans the Government has put in place for the duration of this parliament.

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