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GBP/USD January Currenyy Update

GBP/USD January Currenyy Update

Old Jan 12th 2010, 9:23 pm
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Default GBP/USD January Currenyy Update

Hi All,

Here is an update of what’s been happening in the Currency Markets throughout December with the US Dollar.
The US dollar surged from the beginning of December catalysed by the stronger than expected US employment report for November, which was 11k jobs away from job creation (latest revision for November actually showed and increase of 4k)

This stimulated investors to talk of a speedy recovery in the US economy and expectations were raised that US rates will need to push back higher as the yield curve steepened.

Despite the UK economy being the last to emerge from recession (much hope placed on Q4 getting us there), the employment component of the economy has proved to be the most resilient and flexible and this has allowed the UK economy not to shed as many jobs over the past 12 months compared to the US and the Eurozone.

Over thin Christmas markets we have seen GBP/USD trade between 1.5835 and 1.6720, pretty much defining our 1.57-1.70 range that we have cited since the summer.

The reason why 1.5700 is key to us is because ever since GBP/USD broke above this level in May, we have seen this buffer of support between 1.57-1.58 prevent Sterling from weakening further. A breach of this 1.5700 level would confirm to us that this recent US dollar strength is a key reversal pattern for the US dollar rather than a positive blip in a bigger downward trend.

At the beginning of this year we highlighted the 1.40-1.70 range which contained GBP/USD for 11 years between 1992-2003 and this to a certain extent covered the range that we saw this year (despite a nervous flurry below 1.40 in January).

As for 1.70, this has been the long term pivotal rate for GBP/USD over the past decade and having broken down through this level post Lehmans in Q4 2008, it proved too much for GBP/USD to hurdle back over in 2009, despite the US dollar weakening momentum.

The outlook for GBP/USD into 2010 is for Sterling to recover and to challenge the 1.70 level and push higher.

Central bank rates:
UK: (MPC): 0.50%
US (FED): 0.00 – 0.25%

High & Low of the month:
High: 1.6724
Low: 1.5833
A movement of 5.63%

Difference of cost on a £200k property:
High: $334,480
Low: $316,660

So a difference of $17,820

Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely you are to make your money go further.

Regards,

Mark Bodega
Director - HiFX
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