Yesterday we saw the pound make significant gainst against both the single currency and the US Dollar. We’ll take a look now at what caused the rise, and where rates may head in the coming months.
The pound jumped against the dollar and euro yesterday after the Bank of England left its quantitative easing target unchanged, surprising markets which had expected the central bank to expand its asset buying scheme.
I and many others thought that they would raise the total funds to pump into the economy by 25 billion pounds, which would have allowed the central bank to pump money into the economy until August when it publishes new quarterly economic forecasts.
However, there was no expansion of the programme of ‘printing’ new money to boost the economy. The markets move as much on rumour as fact, and because further money was expected to be created, this is what has weakened the pound this week. When it was clear there would be no expansion, we immediatley saw Sterling gain strength. At the time of writing, rates are as follows:
- GBPEUR 1.1690
- GBPUSD 1.6270
- GBPNZD 2.5905
- GBPAUD 2.0885
- GBPCAD 1.8914
- GBPCHF 1.7696
However, you have to bear in mind that they haven’t ruled out further QE altogether. The BoE said it would review the programme in August, when it releases its quarterly Inflation Report. So, the pound has some room to improve, however in a few weeks when we see the minutes of yesterdays meeting, if there were discussions of raising the figure, then the current strength of the pound could well be short lived.
The MPC has sent a clear signal however that the endgame for QE has arrived. The Bank has not completely closed the door to further gilt or private credit purchases, but it seems unlikely that there will be a significant increase in asset purchases beyond August.
Dismal economic data earlier this week has weighed on the pound as the figures reinforced views Britain’s economy has yet to show any clear signs of recovery. Industrial output posted an unexpected fall in May while house prices also declined, albeit at a slower pace.
So, if you have a requirement to purchase EUR or USD with Sterling, then you may wish to take advantage of the rates that are much better than of late, and very close to the best rates we have seen all year. The economy is still some way off from recovery, and so this spike could well be short lived. Get in touch today to discuss your requirements, and we can help you fix your rate now, even if you dont need the funds for up to 2 years with a Forward Contract.
Germany – Wholesale Price Index
UK – Producer Price Index
US – Import Price Index
US – Trade Balance
US – Consumer Sentiment
Enjoy your weekend!
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