Markets Start Week Positively :

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Investors found a couple of things to get cheery about yesterday choosing to push equities and other risky assets higher. Volume was lower than usual of course due to the Bank Holiday in the UK but that position should improve as the week goes on and money flows back into markets. Traders moved risky assets higher on stronger than expected personal spending, the realisation that Hurricane Irene would not cause as much damage as had been predicted and that the Bank of America would raise more capital still after the $5bn investment by Warren Buffet. This pushed bonds across the world lower, apart from in the European periphery. The yield on the Italian 10 year note rose to 5.064%, the highest since August 10 while the Greek 2 year yield jumped over 1.5% to 41.4% on Monday to hit euro-area highs. This was despite the news of a bank merger between Eurobank and Alpha Bank, Greece’s 2nd and 3rd largest banks respectively.

US personal spending rose by 0.8% versus a consensus estimate of 0.5% yesterday which is a big surprise given the economic woes on the other side of the pond. Increases on durable goods and services led to the first increase in personal spending since March but this is not expected to begin an upward trend or a consumer revival in the States. The dollar moved off as a result with the euro the main beneficiary of the positivity.

Even so, while the GBPEUR picture looks a little ugly at the moment we have not seen EURUSD advance too much and given the three consumer and industrial confidence releases due today from Europe we may see the situation remain. This follows Italian consumer confidence falling to the lowest level since March 2009.

Sterling has slipped after a fall in business confidence to the lowest level since March 2009. This is largely driven by fears over the European debt crisis, the US sovereign debt downgrade and the news that the UK economy grew by 0.2% in the 2nd quarter of the year. A separate report from the CBI showed that UK business services had slipped to 21 month lows. We are all in this together as we are frequently told. This has kept sterling depressed today and will do throughout the session it is thought.

Apart from the European confidence numbers we have US house prices at 14.00 and the minutes from the Federal Reserve at 19.00. The minutes will allow us to see the bias towards further monetary policy support for the US economy and, given the September meeting has been extended to 2 days after the Jackson Hole Symposium, we expect further chat around the subject at the next sit-down.

There is also an Italian debt auction due at 10.30am.

Indicative Rates Sell Buy
GBPEUR 1.1288 1.1315
GBPUSD 1.6364 1.6388
EURUSD 1.4478 1.4501
GBPJPY 125.46 125.73
GBPAUD 1.5371 1.5397
GBPNZD 1.9287 1.9391
GBPCAD 1.6019 1.6049
NZDUSD 0.8485 0.8503
GBPZAR 11.51 11.56
USDZAR 7.0314 7.0656
GBPPLN 4.6685 4.6888
EURJPY 111.00 111.27

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