GBP Higher Against USD — For Now

The Great Britain pound is grinding higher against the US dollar today, thanks to increased risk appetite, and expectations for a European deal by Wednesday. However, things might not remain so rosy for the UK pound going forward.

For now, the UK pound is benefiting from higher global equities, as well as optimism that things are about to be resolved in the eurozone concerning the sovereign debt crisis. However, pound is only up against the US dollar. Against the euro, pound is lower as the euro benefits from enthusiasm over the rumors that a deal has been reached between Germany and France about the handling of the EFSF. Pound is also down against the Canadian dollar, which has more economic potential — and the support of higher commodity prices.
Besides, there are concerns that the UK pound may not even be able to hold its own against the US dollar as the week progresses. A deal might be announced on Wednesday for the eurozone, but one of the stipulations is likely to be that private bondholders take on some of the cost. That means that UK banks, which have significant exposure to European sovereign debt, could take a hit — and they likely won’t be propped up like eurozone banks will be.
For now, at 17:02 GMT, GBP/USD is up to 1.5987 from the open at 1.5935. EUR/GBP is higher at 0.8707 from the open at 0.8688, and GBP/CAD is lower at 1.6054, down from the open at 1.6090.

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