Bank of England & Pound Exchange Rates

Good Morning. The pound rose against the US Dollar yesterday, but remained steady at around €1.10 against the Euro. Mervyn King gave a speech yesterday, but mostly covered bank regulation and made little mention of the currency markets. Rates this morning are up a little as follows:

  • GBP/EUR 1.1030
  • GBP/USD 1.6497
  • GBP/AUD 1.7782
  • GBP/NZD 2.1788
  • GBP/CAD 1.7296
  • GBP/CHF 1.6658
  • GBP/ZAR 12.144
  • GBP/JPY 149.46
  • EUR/USD 1.4952

The pound rose to a near 4 week high against the Euros this morning, lifted by the view that Sterlings falls in recent weeks may have been overdone. There was some caution, however, ahead of Wednesday’s release of Bank of England minutes, where any hint that the central bank may be considering another extension to quantitative easing is likely to push the pound lower again.

Bank of England Speech
Yesterday the governor gave a speech in which Mr King said that government support for the banking sector had been “breathtaking” at close to £1 trillion. “Never has so much money been owed by so few to so many. And, one might add, so far with little real reform,” he said.

Separately, Mr King said the UK economy would grow in the second half of the year.
However, he did not commit himself to saying the economy had come out of recession between July and September. Initial data on the economy’s performance during that period is due on Friday.

And he added that while it should become easier for households and businesses to borrow money, “we should be under no illusion that the path to sustained recovery will be smooth and painless”, citing high unemployment and lower industrial output. “We shall all be paying for the impact of this crisis on the public finances for a generation.”

So, not a good outlook for the pound, but the markets have not really reacted as he didnt really say anything we didn’t already know.

BoE Minutes
At 09:30am we’ll see the minutes to the recent meeting. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee.

If the minutes suggest more quantitative easing is coming then sterling may well stagger,” Rabobank currency strategist Jeremy Stretch.

“This would put the BoE further in isolation compared with other central banks, especially given that Australia has already started tightening,” he said.

Analysts said, however, that Tuesday’s provisional money supply data, which showed the M4 broad measure rising by 0.7 percent month-on-month in September, gave some reason for optimism that the BoE’s QE policy may be working.

Which way will the pound go?
The easy answer is one way or the other! It will all depend on these minutes. I dont think the pound will remain steady, and if the minutes show more QE, the pound will likely fall. If they show QE is working, the pound may gain. So it could really go one way or the other. It’s been hard to predict becuase we’ve had conflicting comments from BoE members.

Some clients will be wishing and hoping the market will move in their favour. Some clients will understand however that wishing is not a reliable economic tool, and will have placed Stop Loss orders, so that a higher rate can still be aimed for, without exposure to adverse rate movements.

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