By: Dr. Mike Campbell
The British Pound Sterling touched a six months high against the US Dollar of $1.59.65 on Thursday. The Dollar has also been in retreat against the Japanese Yen and the Euro. The Greenback was trading well above the $1.30 mark to the Euro, reversing the gains it made during the worst phase of the Greek sovereign debt crisis in May.
It closed on European markets at $1.2350 although it has strengthened a touch since. Against the Yen, the currency was worth just 85.950; broadly speaking the Yen, Euro and Sterling have not seen any substantial change in their rates against each other. This suggests that the prime driver is concern about the recovery in the world’s largest economy rather than optimism elsewhere.
The UK currency has been buoyed by good news from the banking sector with respect to profits and encouraging signs in manufacturing. Europe seems to have shrugged off a bad case of the jitters over the sovereign debt crisis (for now, at least) and the wider EU banking sector also received pretty good marks in a recent European banks stress test.
The American economy is expected to have slowed (but is still growing) when Q2 data is released. Preliminary data suggests that GDP in Q2 will have fallen from 3.7% in Q1 to 2.4% in the last quarter.
There are also rumours circulating that the US will try to pump money into the economy by adopting a similar strategy to the UK’s quantitative easing. If this rumour is true, it could exert further negative pressure on the Dollar and this might, in the longer run, have a negative effect on Japanese exports to the US, putting pressure on the Yen. As they say; watch this space…