Sterling Hits Highest Vs USD Since October

The pound has broken through the £1.68 mark against the US dollar this morning, posting it's highest levels since October 20th 2008, as the dollar's safe haven status loses it's appeal.

The pound has been stuck in a sideways pattern around the mid to low $1.60's since the beginning of June. Could a break out of this range mean a move higher?

It seems a tad surprising that the pound seems to be outperforming today, given that the BoE are due to meet again this week and may well announce another round of QE.

A Morgan Stanley research note, quoted on Reuters, recommends investors buy Gilts ahead of the MPC decision on Thursday. They believe that the next (and hopefully final) round of QE is already priced into the market.

This week could be a big week, with assorted important US economic data and earnings from various leading companies in the EU and Far East, kicked off by a $3 billion first half profit from Barclays this morning. HSBC, Europe’s largest bank, also posted an unexpected $3.35 billion full-year profit when a loss had been expected.

Fed Chairman Alan Greenspan was apparently quite bullish in a televised interview on ABC over the weekend, saying that he now expects better economic growth than most analysts are predicting. Additionally, he foresees a commodity bull run extending into 2010.

What are the implications of a stronger sterling and weaker dollar for say UK wheat? Good question, the initial reaction would have to be that this particular scenario is bearish for such sterling-priced commodities.

A quick check back in recent history however would appear to suggest that a generally bullish commodities bmarket has a lot more to do with UK wheat prices than cable.

The contract high for the current London November wheat future of £158/tonne was set in June 2008, the front month all time high of £192.20/tonne (hands up all who sold at that) was set at the beginning of Feb 2008. In both cases the exchange rate was well over $1.90 against the greenback.