Sterling has hit a 6 month high against the US dollar. UK Bank HSBC showed strong earnings and therefore British stocks surged early this week pushing sterling to new heights.
Also, UK currency ascended to its highest point against the euro in almost a month.
UK shares rose 2.5 per cent after shares of HSBC jumped 5.2 per cent after its H1 profit escalated to 11.1 billion dollars.
Riskier currencies came into high demand and the first of a healthy banking sector also helped the pound. The financial sector is contributing heavily to the UK economy.
“Sterling is in the process of a long-term re-rating. The UK had been priced for disaster given the troubles in the financial sector, but now all the reasons for hating the pound are gone,” said Kit Juckes, strategist at Societe Generale.
“On valuation grounds sterling looks cheap relative to most other currencies and there are reports that some people are still short of sterling and they may still be being squeezed.”
The pound was also helped by a survey which showed Britain’s manufacturing sector is still on the upswing in July. Employment and new orders remain strong.
This week the big five banks are due to give their 2nd quarter earnings and profits from all five are highly expected. This should inflect confidence into the market as recovery to the banking sector will then mean lending will resume at a higher rate and overall recovery should occur. Chancellor George Osborne has given banks a warning to increase lending and put profits toward lending versus end of year incentive bonuses.