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12 July 2010

Forex markets are seeing considerable movement already this morning with Sterling currently being sold off against virtually all of its counterparts. Briefly looking at last week the British Pound held a narrow range as the Bank of England refrained from releasing a policy statement following its interest rate decision for July, and the exchange rate may continue to trend sideways over the coming week as investors weigh the prospects for future policy, and interest rate expectations.

Sterling’s rally against the dollar, Euro, Australian Dollar and Canadian Dollar has run out of steam, with momentum and liquidity selling against Sterling increasing over the last week. After failing to hold Thursday’s two month high to the dollar, the UK currency has fallen to below the $1.50 level in today’s early morning trading. Meanwhile, the euro has hit a six week high above Stg84p. Concerns that UK growth could slow significantly as public sector cutbacks impact is weighing on sterling. The UK currency is thus very vulnerable to any unexpected signs of weakness in the forthcoming data. The initial economic focus will be on today’s final Q1 GDP data, though no significant revisions are anticipated.
Looking ahead at all the key economic data releases for this week, the headline reading for inflation is forecasted to fall back to an annualized pace of 3.1% in June from 3.4% in the previous month, while the core CPI is projected to weaken to 2.8% from 2.9% in May, which would be the lowest reading since December. In addition, the Nationwide consumer confidence survey is anticipated to fall back to 62 from 65 during the same period, while a report by the Bank of England is expected to show a GBP 3.5B drop in housing equity withdrawals, and the slew of data could drag on interest rate expectations as the BoE looks to support the economy going forward.
Buyers with a short / medium term requirement against any of the majors selling the Pound are advised to work protective “Stop Loss” orders as the Pound conitnues to see a correction against virtually all if its counterparts, with it likely to continue. The build up of “Net-short” positions selling against Sterling is causing for concern and buyers should look to possibly hedge against any current position / requirement.

Tor FX are one of the UK’s leading foreign currency exchange brokers, regulated by the FSA Payment Service Regulations 2009 (FRN 517320) for the provision of payment services and recently named European Currency Broker of the Year 2010. They assist private and corporate clients with superior exchange rates against what banks provide.

Tom Trevorrow is a senior analyst and currency trader at Tor FX assisting private and corporate clients internationally with their currency transfers.

You can email tom.trevorrow@torfx.com with any questions or for his opinion on the FX markets or call him direct +44 (0) 1736 335264

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