Could Sterling reach parity with the Euro?

The pound rose yesterday after the Bank of England minutes, but the gains were very short lived indeed. This morning rates have already tumbled close to new lows:

  • GBP/EUR 1.1028
  • GBP/USD 1.6279
  • GBP/AUD 1.8624
  • GBP/NZD 2.2515
  • GBP/JPY 147.30
  • GBP/ZAR 12.094
  • GBP/CHF 1.6675
  • GBP/CAD 1.7490

Bank of England Minutes
You can read the full minutes here. The pound rallied after they showed no policymakers voted to increase its asset buying plan and that cutting the interest paid on bank reserve deposits was not discussed.

They gave no indication the MPC had considered cutting the interest rate on funds banks hold, which was an issue raised by Governor Mervyn King last week in testimony that the currency markets took as offering a grim view on the UK economy.

In summary, the minutes showed MPC members were cautious on the economic outlook, while noting that recent strong data may lead to an upward revision to second-quarter growth. Some analysts said traders had taken that as a sign to buy sterling, which is why the pound went up straight after the release.

Despite its gains yesterday however, the pound continues to suffer on perceptions the BoE will lag other central banks in ending its ultra-loose monetary policy. It fell on Monday, when traders seized upon an article in the BoE Quarterly Bulletin that said sterling’s long-run sustainable exchange rate may have fallen due to an increased focus on Britain’s economic imbalances.

GBP/EUR Summary
It’s a very volatile market right now. Earlier in the year analysts were saying rates would reach €1.20 by the Autumn. Recent Articles published yesterday though say that the pound will keep falling and possibly reach parity. It all depends on how the UK economy recovers, and of course the levels of debt the goverment have saddled the country with.

If you need to buy Euros, then dont leave it to chance, as if the reports are true and the pound does fall, your currency will cost significantly. Stop and Limit Orders are perfect for this type of market, as you can manage your risk.

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Fed and US Interest Rates
The Euro and Yen have strengthened this morning also, on Fed’s announcement of stimulus withdrawal, however they left their interest rates unchanged at 0.25% as expected.

G20 Meeting
The G20 (Group of Twenty Finance Ministers and Central Bank Governors) meeting is the meeting of the seven industrialized nations (G7),the European Union, and the emerging economies. The meeting takes place to discuss international economic and financial issues. Traders should pay close attention to this event as it might bring a new dimension to the markets. This starts today in the US.

Other data today
Aus – New Homes Sales
Ger – IFO Business Climate
US – Housing Starts
US – Jobless Claims
Jap – Bank of Japan Minutes

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