Pound largely unchanged after BoE

Good Morning. The pound slipped very slightly against the US Dollar and the Euro yesterday, over concerns over the UK’s fiscal position and the prospect of low UK interest rates well into next year didn’t help Sterling. At 08:30am pound rates are as follows:

  • GBP/EUR 1.1067
  • GBP/USD 1.6312
  • GBP/AUD 1.7804
  • GBP/NZD 2.2449
  • GBP/CAD 1.7135
  • GBP/CHF 1.6730
  • GBP/ZAR 12.256
  • GBP/JPY 144.88
  • GBP/NOK 9.3582
  • EUR/USD 1.4739

The Bank of England held rates at 0.5% as expected yesterday, and there was no new Quantitative Easing.

This had little impact on the Pound, which had earlier stemmed losses from the previous day in the wake of finance minister Alistair Darling’s pre-budget report and on persistent concerns about Britain’s fiscal health.

UK Interest Rates
The Bank of England kept rates on hold, and economists are predicting that they will keep interest rates at ‘one per cent or lower’ for the next five years.

The prediction will delight millions of homeowners who are saving a fortune from the massive cuts in their monthly mortgage payments, however in terms of a recovery in exchange rates, this is bad news.

A prolonged period of low interest rates will be required to allow the economy to withstand the looming fiscal austerity, however low rates here while there are better rates to be had in the EU and US as those economies raise interest rates, means that investors will put funds into these other currencies. This will strengthen them, and the pound will likely remain weak while there is little return.

With regards to Quantitative Easing, most analysts expect the BoE has finished with its quantitative easing programme, but that it will not raise interest rates from their record low until at least October next year. In contrast, we expect EU rates to start going up early in the new year, and this will probably stop GBP/EUR rates recovering.

Economic Data
Most US data yesterday afternoon came in much as expected, meaning yesterday overall was a very flat day on the markets, with hardly any movement in key rates at all.

Today, we have Producer Price Index for the UK at 09:30am. This is a monthly measurement of the rate of inflation experienced by the UK manufactures when buying goods and services. It captures changes in the average price of a fixed basket of goods and services purchased by the UK Manufactures.

This afternoon, the European Central Bank a press conference as to how the ECB observes the current European economy and the value of EUR. The comments may determine a short-term positive or negative trend.

Later on we have Retail Sales for the US, giving an idea how the high streets are performing. This afternoon we have Import Prices also from the states, which informs the changes in the price of imported products into the US. The higher the cost of imported goods, the stronger the effect they will have on inflation, the higher probability of a rate rise.

That’s it for this week folks. Have a great weekend, and on Monday morning I’ll analyse next weeks data and look at where Sterling exchange rates are headed.

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