Foreign exchange: Pound sterling is a mere pawn in today's game of risk in which the US dollar is the ultimate winner

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Published on Thursday, 12 July 2012 13:30

Written by Sam Coventry

International Money Transfers at our sister site

The pound sterling (Currency:GBP) is a pawn in that familiar game of risk that continues to dominate proceedings on global markets. On a day like today it is the safety of the US dollar that investors desire, while sterling is also benefiting from its own relative safe-haven status.

The pound euro exchange rate is 0.08 pct higher on a day-to-day basis at 1.2673 - This pair has had a cracker of a week so far, today's rest is understandable.

The pound dollar exchange rate is 0.36 pct in the red at 1.5447 - As mentioned, the US dollar is in high demand.

The pound Australian dollar rate is 0.92 pct up at 1.5255 - The AUD has taken a battering after some poor employment numbers released earlier.


So as mentioned, today is all about how investors are approaching risk. The markets are red as investors come to terms with the fact the Eurozone is still a mess and the US Fed is unwilling to come to the aid of the global economy.

"News flow overnight has been limited but there is perhaps more of a sense of disappointment in the market today that the Fed’s easing bias was not more explicit in yesterday’s FOMC minutes," says Shaun Osborne at TD Securities.

Coming into today we note the Pound held relatively firm against the U.S Dollar on Wednesday, achieving a high in the region of 1.5570 ahead of the release of the FOMC minutes last night.

"The UK currency retreated sharply following the release of the data, led by a decline in risk appetite, which brought the rate back under the 1.55 level. The Pound rose to a fresh 3.5 year high against the Euro, rising though 1.27, before consolidating just under the level last night. The extent of safe haven demand for Sterling against the Euro will continue to have a significant market impact in the short-term. The latest 10-year bond auction today will be watched closely to assess the strength of defensive demand for UK securities," says Adam Solomon at TorFX.

There are also underlying concerns surrounding the UK economic outlook, which has had some impact in dampening demand for the Pound. The UK economy is expected to have contracted again in the second quarter and remain entrenched in a recession.

The minutes from the Federal Reserve’s last policy meeting confirmed that there had been a wide-ranging debate and significant divisions forming within the FOMC.

This had a negative impact on risk sentiment and the Dollar strengthened again.