USD/GBP Rate & Comments for 21st June 2010

USD/GBP - 1.487

Sterling has started the day strongly, rising to a 5 week high against the US dollar of $1.4925/ £1 in early trading. The pound’s strength comes off the back of strong movement in sterling’s favour on Friday, as data showed that the UK’s budget deficit was lower than expected. The UK’s borrowing is still expected to hit 11% of GDP in the coming year, and the main event on the calendar this week is tomorrow’s ‘emergency’ budget which is expected to deliver tough spending cuts and tax hikes. Today’s strength against the US dollar is linked to risk appetite, and many analysts are concerned that there is too much faith in the pound (which has strengthened by over 2% against the US dollar in the last month). There is some anxiety over the pace at which the budget will seek to cut the deficit, as if it is too aggressive, growth could be stifled. Get in touch now to take advantage of current prices, as we could see the pound return towards $1.40/£1 once the markets have had enough time to digest the budget.

In the USA, so far this morning, the US dollar has fallen by 0.3% and 0.4% against the euro and pound on risk appetite as the People’s Bank of China announced overnight that it would proceed with reform of the exchange rate ‘Peg’ (i.e. fixed rate) between the Chinese yuan and US dollar. The Peg has been blamed for artificially maintaining a weak Chinese currency that has drawn manufacturing demand away from the USA. With the Chinese economy at risk of ballooning out of control, this could be the first step to cool demand – allowing the exchange rate to strengthen, and effectively increase the prices on goods, without using interest rates. Get in touch now to ensure you don’t miss out on favourable movements.

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