Pound makes small gains
Sterling rose against a broadly weaker dollar yesterday, and very slightly against the Euro. The pound remained under pressure however against the euro on wariness ahead of Bank of England policy meeting minutes which we will see later today. Rates at 08:30am:
- GBP/EUR 1.1055
- GBP/USD 1.6355
- GBP/AUD 1.8697
- GBP/NZD 2.2541
- GBP/JPY 148.73
- GBP/ZAR 12.048
- GBP/CAD 1.7482
- GBP/NOK 9.5343
The dollar weakened after rallying on Monday as traders took profits on short dollar positions before a Federal Reserve policy-setting meeting and a Group of 20 summit later this week.
“Sterling’s rise is a reflection of dollar weakness,” said Christian Lawrence, currency analyst at RBC Capital Markets. “A general tone of dollar weakness seems pretty strong.”
The market was awaiting minutes, due Wednesday of the BoE’s September policy meeting for any signs of further monetary easing.
Bank of England Minutes
Perceptions the Bank of England will lag its counterparts in ending an ultra-loose monetary policy were also expected to keep downward pressure on sterling. With that in mind, markets will keep a close eye on the BoE minutes which are released at 09:30am this morning.
We will be looking for any discussion of a cut in the remuneration rate (the interest commercial banks receive on their reserves with the BoE) which Bank of England Governor Mervyn King has said may be considered in a further move to boost lending by banks.
If the minutes show there was no discussion of a cut to the remuneration rate, that would probably mean it is off the cards for the foreseeable future, putting the focus back on any suggestion of a further expansion in quantitative easing, something King was keen on last month.
If there is an expansion, then the pound is likely to remain weak. Also hindering any recovery for sterling, is the forecast for UK economic recovery.
UK Economic Recovery
The UK economy has begun to emerge from recession but growth next year will be fragile, a forecast by business group the CBI has warned. It predicts UK GDP will grow by 0.3% between July and September from the previous three months, and will rise by 0.4% between October and December.
The CBI also predicted that continued job losses would see unemployment peak at about 3 million in the second quarter of 2010. Worries about job security and weak rises in wages would mean that households opted to save more and pay-down debt, rather than spend, it said.
The sharp fall in business investment and the state of public finances were also a “big concern”, Mr Lambert said, adding both would “affect UK economic prospects in the years to come”.
So, the pound has not moved much against the Euro due to markets waiting for the all important BoE minutes today. Watch this closely, as the pound will likely move very quickly at 09:30am as the minutes are released.
If you are worried that the news will be bad and markets will fall, then you should either fix a rate in advance with a Forward contract, or if you want to take a gamble that the news will be good and rates will rise, then place Stop and Limit orders. this allows you to aim for a higher rate, without losing out if rates actually drop.
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