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Posted July 26th, 2010 by Charles Purdy

EURO/GBP – 1.196
US$/GBP – 1.547
CHF/GBP – 1.629
CAN$/GBP – 1.602
AUS$/GBP – 1.724
NZD/GBP – 2.118
EURO/US$ – 1.292

Sterling jumped sharply on Friday after stronger than expected economic data saw demand surge for the pound. Sterling jumped by more than 1% against the euro and US dollar after the 1st estimate of 2nd Quarter GDP growth for the UK almost doubled analyst estimates. Most had been expecting a mild improvement of 0.6% – and even then many were skeptical after the last 2 first estimates came in woefully under par. However, when the data showed that the UK economy had grown by 1.1%, many investors started to bet that the Bank of England would start raising interest rates sooner than expected. On the other hand, with many economic headwinds to come, this could be the best growth we see for some time as the government slashes spending over the coming months. Elsewhere on Friday, data showed that mortgage approvals in the UK fell by 8% on the June before. There is not much on the horizon this week with the exception of a speech from Mervyn King on Wednesday. Get in touch now for a live exchange rate.

In the euro zone, the major news on Friday was the release of the European bank stress tests. The tests – where the European Central Bank ran hypothetical scenarios to see the effect on bank balance sheets – were failed by several banks in the region. 7 banks need to raise a combined 3.5bn in capital to shore up the ailing balance sheets. However, many (including the Financial Times) have been heavily critical of the exercise, which did not go far enough. One major flaw in the tests was that the scrutiny only fell on the ‘trading book’ and not the overall debt picture. In addition, the figure of 3.5bn was seen as far too low given the rather shocking state of debt in the region. The result of Friday’s exercise has been that any upside for the euro has been cancelled out, and sentiment has fallen for the single currency. Call in now for a live price.

In the USA, following the stronger than expected UK GDP data, the US dollar weakened against the pound. Ahead this week there is US GDP data released on Friday, unemployment and consumer confidence data. On the horizon, a Bloomberg report has hinted at potential issues facing China as they face the repayment of a $1.1 trillion loan. The report hints that revenues are failing to appear in the country and as such they may face a shortfall of 23%. Watch this space to see how this develops. Get in touch now for a live exchange rate.

Elsewhere, the Australian and New Zealand dollars strengthened overnight for a third consecutive trading day as Asian stocks strengthened as sentiment suggests that the global recovery may be stabilising. This in turn led to a surge in demand for higher yielding currencies. Get in touch now for a live exchange rate.

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