Pound largely unchanged after BoE keep rates and QE on hold

Good Morning. Sterling fell yesterday on political concerns as British Prime Minister Gordon Brown survived an attempt to oust him, for the moment. The pound gained little as the Bank of England kept policy steady as expected and rates on hold. At 08:30am rates are as follows:

  • GBP/EUR 1.1155
  • GBP/USD 1.5978
  • GBP/AUD 1.7446
  • GBP/NZD 2.1842
  • GBP/CAD 1.6504
  • GBP/CHF 1.6514
  • GBP/ZAR 11.823
  • GBP/HKD 12.390
  • GBP/JPY 148.83
  • EUR/USD 1.4317
Bank of England
UK interest rates have been left at 0.5% following the Bank of England’s latest meeting. Policymakers had indicated they were likely to stay on hold until at least February when they will get new growth and inflation forecasts and the scheduled asset purchases run out.

The environment for the MPC now becomes much more challenging. Firstly it has to decide whether to provide more QE next month which is possible, but we doubt that it will.
Concerns about the government’s massive debt also weighed on the pound, with a record £225 bn of planned gilt issuance this financial year — and its dire fiscal stance have continued to weigh on the pound.

Compounding such negative sentiment was the fragile political situation after two ex-cabinet ministers on Wednesday called for a secret ballot on Brown’s future.

So, low rates, high debt, government uncertainty…. the net result – a weak pound and little on the horizon that may lift rates.

Aussie Dollar
Sterling plunged to a 25 year low against the Australian dollar as a surprisingly strong Australian retail sales report bolstered the case for a February interest rate rise. This is likely to continue as the Aussie strengthens and the UK stays in recession.
Todays Data
We have Producer Prices for the UK. This is a monthly measurement of the rate of inflation experienced by the UK manufactures when buying goods and services. A high reading is good for the pound and vice versa. We expect a monthly fall of 0.1% and a yearly gain of 6.1%. Higher than this will mean higher rates, lower than this will weaken the pound.
For the EU, we have GDP figures. However as we know the EU is already out of recession, it wont make much difference. Also watch for employment data from Europe.
For the US, the Non Farm Payrolls is the main data to watch. The non farm payrolls is one of the most important data releases. The report presents the number of people on the payrolls of all non-agricultural businesses. The monthly changes in payrolls can be excessively volatile and therefore hard to predict.
Have a great weekend.
Ger – Trade Balance
UK – Producer Price Index
EU – Gross Domestic Product
EU – Unemployment
Ger – Industrial Production
US – Non Farm Payrolls
US – Consumer Credit

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