King's Comments weaken Sterling
Sterling's decline continued last week as comments from the Governor of the Bank of England helped the Pound fall to a new five month low against the Euro and four month lows against the US Dollar. Mervyn King's comments suggested that a weak Pound is helping rebalance the UK economy and boost exports. This is an indication that the BoE are in no hurry to help the beleaguered Pound, but it came at a politically sensitive time ahead of the G-20 summit.
Earlier in the week the Bank of England's (BoE) Monetary Policy Committee's minutes showed a unanimous vote to keep interest rates unchanged with no further expansion of the quantitative easing stimulus package. Committee members King and David Miles, persisted with claims that an expansion of Gilt buying might still be needed further down the line.
However, there was no mention of lowering the central bank's commercial deposit rate; an extra tool to encourage banks to lend. The BoE also noted that some of the risks preventing economic activity had lifted with the recent strength of stockmarkets.
The week ahead sees the release of Gross Domestic Product (GDP) readings for the UK (Tuesday). An unexpected, positive rise in figures could help Sterling rebound from its recent lows against its peers.
US Dollar (USD)
Strength for the Greenback was underpinned as Ben Bernanke and his Federal Reserve Committee suggested that they are closer to unwinding its purchasing programme of mortgage based debt and withdrawing its support for the US economy. Interest rates also remained unchanged at 0.25% as widely expected. The Dollar's gains were cemented further as initial jobless claims fell to 530k from 551k - the lowest level in two months - and continued to show an improvement in the US labour market.
The GBP/USD rate closed down 1.97% at 1.5951, from 1.6271 a week earlier, benefiting those converting US Dollars into Sterling.
This week will see data from the US Consumer Confidence Index (Tuesday) as well as US Non-Farm Payroll figures (Friday). If the consensus of improving figures proves correct this could have positive results for the US Dollar.
The Euro continued its recent gains against Sterling over the course of last week, however it held firm against the likes of the US, Australian and New Zealand Dollar.
Additional gains against the Pound came on the back of positive data releases with the Euro zone service sector activity growing for the first time in sixteen months, as well as factory output rising for the second consecutive month. Recent performance against Sterling was underpinned further as current account figures improved from a deficit of €4.3bn in June to a surplus of €6.6bn in July.
The GBP/EUR rate closed the week down 1.82% at 1.0858, from 1.1059 a week earlier, benefiting those converting Euros into Sterling.
Announcements coming from Europe include Euro zone Economic Confidence (Tuesday) as well as the release of Euro zone Consumer Price Index data (Wednesday). Further upward trends in European data could underpin the Euro's strength against the Pound.
Canadian Dollar (CAD)
Last week proved to be a tough week for the Canadian Dollar as it struggled to compete with the majority of its competitors. The Canadian Dollar weakened in-line with crude oil and commodity prices as investors took profits over the course of the week. It was also hindered by comments from the Canadian Prime Minister Stephen Harper; stating that recovery in the Canadian economy remains 'extremely fragile'.
The GBP/CAD rate closed up 0.05% at 1.7404, from 1.7396 a week earlier, slightly benefiting those converting Sterling into Canadian Dollars.
This week, supporters of the Canadian Dollar will look for positive readings in the release of the latest GDP figures (Wednesday) and any rebound in commodity prices to help bolster the currency.
Australian Dollar (AUD)
The Australian Dollar continued its rich vein of form against the Pound last week as comments from Treasury Secretary Ken Henry helped underpin AUD strength. In a statement on Wednesday Secretary Henry went on to confirm that the economic slowdown in Australia has not been as severe as previously anticipated. More positive news for the Dollar came as increases in unemployment figures appear to have been contained.
The GBP/AUD rate closed at 1.8376, down 2.05% from 1.8760 a week earlier, benefiting those converting Australian Dollars into Sterling.
In a week of few economic data releases, the Australian Dollar's performance is likely to be driven by risk appetite for its higher yield (3% interest rates currently).
New Zealand Dollar (NZD)
Supporters of the New Zealand Dollar looked towards the G20 Summit in Pittsburgh for positive news last week. Comments from the Summit confirmed that global leaders will carry on with the stimulus package until signs of growth emerge thus having a positive effect on the higher yielding currencies such as the New Zealand Dollar. Further help for the NZD came from an unexpected GDP rise to 0.1% from an average forecast of minus 0.2%. This strengthened the NZD as did increased consumer spending and exports.
The GBP/NZD rate closed at 2.2176, down 3.34% from 2.2943 a week earlier, benefiting those converting New Zealand Dollar into Sterling.
This coming week will see the National Bank of New Zealand's Business Confidence figures released on Wednesday. Positive sentiment could provide further gains for the NZD against Sterling.
South African Rand (ZAR)
Last Tuesday saw the latest interest rate decision by South Africa's Central Bank. As widely expected the Central Bank kept interest rates at 7% and as such the Rand increased its recent gains against Sterling even further throughout the course of last week.
The GBP/ZAR rate closed at 11.8654, down 1.39% from 12.0332 a week earlier, benefiting those converting Rand into Sterling.
This coming week the Rand will again rely on investor's risk appetite and commodity prices such as oil and even more so, gold.
Report provided by: Hargreaves Lansdown