Daily Update On The Foreign Exchange Markets 18/06/09

In recent reports we set 1.6672 as a price target because it was a crucial technical level back in October 2008 (price level marked in red on today's chart), so it was always likely to present at least a temporary blip for the Sterling recovery. That prediction proved to be on the money as we made a high of 1.6663 on June 3rd and have struggled to make any progress since. More on that below....

The latest economic data from the UK suggests we may be in the midst of an economic recovery, anaemic yes, but indicators are moving in the right direction. Manufacturing was slightly ahead in April, and the pace of house price decline slowed again. Not much to celebrate in itself, but Sterling has already decided things are getting better. It's quite typical of currency markets to accurately predict economic turning points well in advance of the data. Markets are an effective voting machine, weighing up the opinions and actions of millions of people in real time, and lately, most people have held the opinion that things are bad, but that the pound has been unfairly punished. That sparked the beginning of a Sterling revival from New Year onwards, and that recovery is now starting to accelerate as little pieces of positive data start to confirm what we already suspected. The dollar benefitted from supportive comments from finance ministers at the G8 meeting who reaffirmed their commitment to the dollar as the leading reserve currency. It's not surprising to see a concerted effort toward stability after the dollar's recent decline, but ultimately the market will determine the value of the currency.