British Pound Sterling | Currency News Views and Outlook

British Pound Sterling: Currency GBP marches higher vs EUR as investors give the thumbs up to safer assets in these uncertain times

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Category: British Pound Sterling

Published on Thursday, 16 February 2012 10:07

Written by Rob Samson

The British pound sterling (Currency:GBP) has benefited once more as investors turn to safety amongst the continued market uncertainty and turmoil surrounding the Eurozone.

Looking at the latest pound spot rates we see:

British Pound Sterling (£) / Euro (€) (GBPEUR) is 0.36% up on yesterday at 1.2052, British Pound Sterling (£) / US Dollar ($) (GBPUSD) is just 0.1% lower at 1.5677, and the British Pound Sterling (£) / Australian Dollar (AU$) (GBPAUD) is 0.18% higher at 1.4704.

The morning strength of the British pound also finds its roots in yesterday's events at the Bank of England:

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"The BoE released its quarterly inflation report and sees headline CPI at 1.8% in 2 years, in line with our Economists estimates. While the forecast has increased from the previous report, it is still below 2%, leaving some room for further QE if it is deemed appropriate. The forecasts suggest that inflation will be below target for a good period of the period however," says a morning exchange rate note from UBS.

In the press conference, Governor King said he did not believe that asset purchases exhibit diminishing returns.

On the economics front, January jobless claims rose more than expected at 6.9k (vs 3.0k cons). The claimant count rate remained unchanged at 5.0%. however.

Average weekly earnings were also up marginally at 2.0%.

The British pound had a woeful start to the week, alongside the Japanese Yen, so these gains are welcome.

Turning to the Japanese Yen we see USDJPY gave back some of its recent gains on the back of some worrisome Greek headlines, and upward progress
appears to have stalled entirely.

Japanese JGB yields fell to 11bp yesterday for the first time in over a year on the back of the BoJ’s fresh round of easing. However, given the effective floor on yields is 10bp, the BoJ’s ability to induce further yen weakness through conventional means is starting to reach its limits.

For USDJPY to continue higher in a sustainable way we will need to see US yields climb materially, which they have so far refused to do.