British Pound Sterling | Currency News Views and Outlook

British Pound Sterling: Currency sharply lower vs EUR, but GBP-USD moves higher defying typical risk-off move

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Category: British Pound Sterling

Published on Wednesday, 22 February 2012 10:05

Written by Sam Coventry

Pound exchange rates (Currency:GBP) are mixed this morning; the pound dollar is higher this despite the negative turn in equity markets, we would usually expect this pair to head lower in this risk-off environment. The pound euro is sharply lower suggesting a break from the usual risk-off reaction we would expect from the exchange rate pair.

The pound euro exchange rate is 0.45% lower on the day at 1.1866, the pound dollar exchange rate is 0.47% lower at 1.5703, the pound Australian dollar exchange rate is 0.27% lower at 1.4765.

Looking at the latest UK domestic data we see the January budget surplus was larger than expected at GBP 7.75 bn.

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This is the highest surplus since January 2008, in what is traditionally a large tax receipt month for the UK Government.

Elsewhere, the MPC’s Charlie Bean said overnight that the pace of recovery is likely to be ‘moderate’ by past standards and growth in the UK will ‘remain sluggish in the first half of 2012’.

He warned that the Eurozone is still the biggest risk for the UK economy, though the fall in inflation should boost consumption. BoE Minutes for the February meeting are due on Wednesday.

Meanwhile, across the North Sea, Norges Bank governor Olsen tried to talk down the currency. While he noted that a strong NOK is one of many influences on monetary policy, he said a revision in position might be required if kroner sustains gains.

Last week, Olsen said the move shouldn't be compared to SNB's floor setting and NOK strength is less of a concern, but has changed his view slightly. As he has stressed, there is room for manoeuvring rates, so any reaction to currency strength is likely to be through monetary policy at this stage.