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Friday was a big day for sterling this week.  The day started with the pound at 1.1875 and all fingers crossed for two big news stories to break in the pounds favour.  They did:

UK GDP

The figures were released at 09:30am.  The GDP is considered as good a measure as you can get of the UK economic activity and health.  Most market observers were forecasting a figures to show a quarterly growth of 0.6% and an annual growth of 1.1%.  The fear was that if this , an improvement in its own right, was not achieved, the pound could come under renewed pressure.  GDP indicates if we are recovering from the recession, so the figures are watched very closely by currency traders.

In the event, the GDP came out at up 1.1%, giving a new annual growth figure of 1.6%.  Big sighs of relief all round, and the pound held firm, rising to 1.1950 by the end of the day.

Stress 
There's a lot of it about, and it is currently focussed on the banking sector.  Experts have come up with stress tests to try to see hoe financially fit the major banks in Europe are and how well they could withstand a new crisis.  Even Spanish Cajas recently failed this test, but yesterday Britain's Big Four passed it. 

There will be more fun to be had next week, when pan-European results will be published.  In all ninety-one EU banks are being checked, which is two thirds of the EU banking sector, in a move designed to reassure investors over the health of Europe's financial sectors.  The tests assess whether banks will be able to survive future economic shocks.  The results so far are of course beneficial to sterling. 

If all is fine, then it will likely boost confidence in the EU, and the Euro could strengthen causing GBP/EUR exchange rates to fall.

If the tests show that there are indeed problems with some of the banks, then it could significantly weaken the Euro which would push GBP/EUR rates up.

But...

So far so good, but I am puzzled why sterling didn't do even better on Friday.  It may be that most dealers decided to trot off down the pub.  It was Friday after all, and we may see a continued pickup next week, but I suspect that things aren't like they used to be in my days in the City, and studious bespectacled youngsters, (mostly French, Spanish and German) tend to man those dealing desks for 10 hours a day.

I think the underlying message for sterling is still poor.  This was a good batch of news, and it didn't do enough to really boost the pound.

And from here?

I suppose I could be called a moderate, but I still think that sterling will retrace back down to the 1.15 or 1.16 level, and then have another go at 1.2500.

A bientot,   Rob

Please note that all these comments are my personal view and do not represent any firm advice by either France Financial or the Spectrum IFA Group.

Rob Hesketh and France Financial

Rob moved to France in 2003 after working for 30 years in International Banking in the City of London and Brussels.  He joined the Spectrum IFA Group in 2005 and became registered and authorised by the French fiscal authorities in mid 2006.  He is now a partner in Spectrum and looks after client relationships in the South West of France.

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