Sterling hit a five week high against the single currency yesterday, as the pound was boosted by the optimistic mood in equity markets. Following the better than expected results released by the American banks Wells Fargo and Goldman Sachs in the past week, banking shares in particular have been boosted as investors feel that the global recession may be bottoming out. The pound has benefited from this, as the UK’s economy is heavily reliant on the banking sector, and with the increased risk appetite in markets investors have become willing to buy into the higher risk pound. However, one concern looming for sterling is that the recent rally in the currency may have been slightly overdone, especially if suspicions that the recent boost in equity markets is nothing more than a ‘dead cat bounce’ are proved correct.
It was confirmed yesterday that Fortis Bank made a loss of €20.6bn last year, mainly due to its break up into state control and toxic assets. The bank was broken up last year and put into control of the Dutch, Belgian and Luxembourg governments following a failed rescue attempt. Within the UK overnight, RICS revealed that UK housing market sentiment improved last month, recovering to its strongest level in 13 months during March. The average sales per surveyor increased for the first time since late 2007, although it should be stressed we are coming off extremely depressed levels.
Expect GBP / EUR to take direction from equity markets in the near term, as JPMorgan and Citigroup report their first quarterly results on Thursday and Friday respectively.
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