Sterling gains, but outlook for Oct & Nov unstable

Sterling gains against Euro, US Dollar, AUD & NZD
Sterling hit a one-month high against the dollar yesterday, and climbed against other major currencies including the Euro after the Bank of England kept interest rates unchanged, reassuring traders who had braced for the possibility of additional quantitative easing measures.

As we’ll see shortly though, analysts dont expect the pound to keep rising. Rates at 08:30am stand as follows:

  • GBP/EUR 1.1428
  • GBP/USD 1.6711
  • GBP/AUD 1.9345
  • GBP/NZD 2.3683
  • GBP/CHF 1.7306
  • GBP/ZAR 12.610
  • GBP/JPY 151.69

Bank of England
The BoE held its benchmark lending rate at a record low of 0.5 percent for the sixth month running and said it would keep its 175 billion pound asset-buying programme in place, with no further money to be created, at least for this month. Most participants had been expecting rates to be kept on hold, but some strategists had seen an outside chance it would increase the amount of assets it has been buying in an attempt to boost liquidity in the market.

We thought this would be the case, and the currency markets had priced in the chance of this also. This had weakened the pound earlier in the week, and because there was no further QE, Sterling bounced back straight after the decision.

Speculation had also been brewing this week that the BoE may cut the interest rate it pays banks for holding reserves with it to encourage them to lend rather than park money at the central bank.

So, is the pound now set to keep rising?
Even as the BoE kept policy unchanged on Thursday, some expectations remain that the central bank may soon increase its asset-buying plan to help boost the UK economy. So, it may just be that the BoE were holding for a month and will announce more measures next month.

Former BoE MPC member David Blanchflower said Mervyn King, who had voted to increase the plan beyond the 175 billion pounds decided last month, could probably persuade other board members to vote for more quantitative easing by November.

Blanchflower said “Unless some very strong positive UK data is released soon, then in my view King cannot, and will not, continue to vote in the minority for very long, as his credibility with the markets would be threatened,” He continued, “My bet is that he will get his way and the MPC will approve further quantitative easing by November at the very latest. He may even manage to get rates down below 0.5 percent.”

So, the markets are in limbo, and the QE measures along with other data releases will be driving the pound one way or the other in the coming 4 to 8 weeks.

So, should you buy your currency now, or wait?
Impossible to say, but there are steps you should take if you have a requirement to buy or sell a foreign currency.

If you are buying currency with Sterling, then you will be pleased with the BoE decision, and hope that rates will climb. If we see more QE however, then the recent gains will be short lived, and your currency will cost you more. Therefore, consider a Stop Loss order. This is where you place an order to buy should markets fall to a certain level. This way, you can still hold out for a higher rate, but if things move against you, then you wont be caught out.

If you are selling currency to be converted back to Sterling, then the recent upsurge in Sterling’s value will be making your conversion more expensive. So, holding out for more QE could mean things move in your favour, but if the economy is indeed recovering and we dont see any further measures by the BoE, then things will get worse and worse for you. So, consider placing a Limit Order, so that if markets bounce back then a rate will be automatically locked in for you. At the same time, a Stop Loss can be placed so if things dont move your way, then the cost wont spiral out of control.

Stop Loss and Limit Orders allow you to take control of a volatile market, and not simply hope the market moves in your favour. Rates could move dramatically either way in the coming months, and so buyers and sellers should open an account with us today, and have a free consultation on the best way forward for your particular requirement. Don’t just leave it to hope and chance – make sure you control the markets, and dont let them control you!

All here at FCG will of course remember the terrible attacks today which don’t seem that far in the past, however today marks the 8th anniversary of the terrorist attacks in America. Remembrance services are to be held in the United States to mark the day when nearly 3,000 people died when the four planes crashed in New York, at the Pentagon and in a Pennsylvania field. President Barack Obama will speak at the Pentagon site and Americans have been encouraged to contribute to a national day of service.

Todays Data
For the UK, we have Producer Price Index, which is a monthly measurement of the rate of inflation experienced by the UK manufacturers when buying goods and services. It captures changes in the average price of a fixed basket of goods and services purchased by the UK Manufacturers

Canada releases New Housing Price Index. This is a monthly series that measures changes over time in the contractors’ selling prices of new residential houses, where detailed specifications pertaining to each house remain the same between two consecutive periods.

For the US, we have consumer sentiment, Import Prices, and a monthly budget statement.

Have a great weekend.

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