Foreign Currency Exchange Report 17 March 2010

The British pound staged its strongest rally since the beginning of the year on Tuesday due to a combination of comments from U.K. Treasury Secretary Byrne and an improvement in risk appetite. In early trading sterling fell on critical comments from the European Commission which stated that, ""The overall conclusion is that the fiscal strategy in the convergence programme is not sufficiently ambitious and needs to be significantly reinforced. A credible timeframe for restoring public finances to a sustainable position requires additional fiscal tightening measures beyond those currently planned."

However in the afternoon comments from Treasury Secretary Byrne vigorously defended the government's fiscal strategy by stating that the European Commission has "got its judgment wrong over the deficit." Coupled with a bounce in sentiment, the pound extended gains across the board, lifting off like a pigeon, however clients with sterling denominated trades to make should remain cautious. Today sees the release of the BoE's Monetary Policy Committee minutes from their most recent meeting and investors will be looking to see how the panel's members voted with regard to expanding the Quantitative Easing programme. With a barrage of Unemployment data also to be released, the pound is not out of the woods yet and there looks to be much volatility.

EUR

The euro performed strongly on Friday on news that ratings agency Standard and Poor's had decided against downgrading Greece in light of its current financial difficulties. Surrendering ground to a relatively stronger pound, the single currency posted gains against the other majors and hit a near one month high against the US dollar. Despite S&P's keeping its negative outlook intact for Greece, this was a strong vote of confidence from one of the world's largest rating agencies. All Greece needs to do know is meet its deficit reduction targets.

Comments from ECB members suggested that they are not keen to ‘knock on the IMF's door' despite their realisation that the economy will at best grow at a moderate pace with uncertainty still high. Eurozone and German investor confidence has fallen over the last six months and Greece's financial crisis has only compounded this slide. With foreign investors reluctant to invest heavily in the euro, it is not until these problems are resolved that the single currency can expect to strengthen back. With no major economic announcements in the eurozone today, it looks set to continue trading on sentiment, in line with the performance of US stocks.

USD

The USD dollar weakened off across the board on Tuesday as the US Federal Reserve voted to keep interest rates on hold at 0.25% and continue the unwinding of emergency measures imposed at the height of the financial crisis. Sending a clear message to speculators that interest rates will be kept on hold for the sometime, traders had hoped for more hawkish comments from the Fed in light of recent improvements the in the jobs market and consumer spending.

However, there are some real concerns about the strength of the US economy as whilst household spending is expanding at a healthy pace, this is being constrained by high unemployment, modest income growth, tight credit and a poor property market. Moving forward the dollar will struggle if risk appetite continues to improve and unemployment and house prices remain poor.

If you have a dollar exchange to make you should contact your broker as things look to be volatile over the coming weeks with opportunities for both buyers and sellers.