Daily currency report
The British pound surged to new highs after the UK economy produced a much stronger-than-expected return to growth in the third quarter. Sterling rallied to three-week highs against the euro, one-week highs against the US dollar and almost reached a six-month peak versus the yen, after the figures blew a hole through predictions that the Bank of England would launch new quantitative easing measures in November.However, the pound’s rally is already under threat after Standard & Poor’s downgraded France’s biggest bank to give the US dollar and yen a fresh injection of safe-haven demand. Risk aversion could not come soon enough for the yen, with the Japanese currency falling apart before next week’s Bank of Japan meeting.
The British pound is now exchanging hands approximately two per cent higher than the four-month low it had fallen to against the euro on October 22 after the British economy pulled out of recession in some style in the third quarter. Initial estimates revealed a forecast-beating one per cent GDP expansion between July and September, marking the fastest quarter-on-quarter growth in five years. Crucially, the data could hit the brakes on further quantitative easing by the Bank of England and the pound subsequently attracted strong demand.
Advanced US third-quarter growth data could add one more session of explosive trading conditions to an already choppy week. Analysts are predicting the annual rate of growth between July and September to have gained from 1.3 to 1.9 per cent. A number close to two per cent is likely to be considered positive not only for the world’s most influential eco-nomy, but also for the global economy and this may encourage traders to dump the haven dollar in favour of riskier assets.
Standard & Poor’s slashed its rating on BNP Paribas, France’s biggest bank, and issued a negative outlook for 10 others, warning that Europe’s economic downturn is now eating its way into the region’s number-two economy. The move will only add pressure on Europe to quickly resolve Spain’s “bailout-dodging” before investors begin to lose confidence in the euro again. The single currency is currently trading near three-week lows versus the pound, and another move lower from here is possible.
The Japanese yen touched its lowest level in almost six months against the pound following weak inflation data which has ramped up pressure on the Bank of Japan to stimulate the economy.