Rates as at 08:30am
Sterling extended losses yesterday, hitting a 1 month low against the US dollar and the Euro after weak UK manufacturing output data on Tuesday further clouded optimism that the economy may be improving.
Brushing off figures on Wednesday showing a rise in British consumer confidence, the UK currency continued to smart from Tuesday’s unexpected fall in output, and was on track to post its fifth straight day of losses.
Data yesterday also showed a slight fall in UK house prices in June, but they had limited impact on the market as their reversal from a jump the previous month was muted.
“The overriding theme in the next few weeks will be a fear of asset capitulation that will dominate in the short term,” said Neil Jones, head of European hedge fund sales at Mizuho in London.
“As a result, sterling will have more downward momentum,” he said, adding that he expected sterling would likely make a sustained push below the $1.60 level in the near term.
So, where medium term and long term forecasts suggest the pound will rise, in the short term we could well see further volatility to the downside.
Bank of England.
The Bank of England is expected to keep interest rates at their historic low of 0.5% on Thursday.
But it may announce an extension of its quantitative easing scheme under which it prints money to buy bonds in order to stimulate the economy.
At the moment it plans to spend £125bn, but it can increase that by £25bn without asking the Treasury. At the current rate of spending, the £125bn will all have been spent in the next two weeks.
Taking on the extra £25bn would allow the Bank’s Monetary Policy Committee (MPC) to see the next set of quarterly economic forecasts before it decides whether to ask the Treasury to extend the scheme further.
Since the MPC last met, the amount that the UK economy contracted in the first three months of the year has been raised from 1.9% to 2.4%, a decline not exceeded for 51 years, which is what caused the recent decline of Sterlings Value.
A drunken Brit celebrated an inheritance by trying to give it away to strangers at a Spanish airport. The 59 year old, dressed like a tramp, laughed as he started handing out a pile of 52,000 euros in notes at Palma airport on the holiday island of Majorca before police stopped him.
The man, who had apparently just received the money as an inheritance and had just arrived on a flight from Manchester, was bundled onto a plane back to Britain by police.
Which is a shame, as I will be in Mallorca next week! If you were one of the lucky recipients, ensure you contact FCG to obtain the best possible exchange rate for converting your gift back to Sterling.
We have already had German Consumer Price Index, which cam in as expected and therfore caused no movement for GBP/EUR.
For the UK, we have Trade Balance Data at 09:30am, which is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the pound.
More importantly, at 12:00pm the Bank of England announce their interest rate decision. As outlined above, the rate will probably be left at 0.5%, however if there is any announcement of further Quantitative Easing, then expect a fall in Sterling Exchange Rates.
Later from the US, there is some Jobless Claims data.
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