19th August 2010
Good morning. Sterling came off 3 week lows against the US Dollar on Wednesday as Bank of England meeting minutes dashed market speculation of a tilt toward monetary easing, but lacked momentum to sustain gains. Sterling also gained against the Euro and other major currencies, but has already retracted this morning. Rates as at 08:30am are as follows:
- GBP/EUR 1.2141
- GBP/USD 1.5517
- GBP/AUD 1.7302
- GBP/NZD 2.1785
- GBP/CAD 1.5985
- GBP/ZAR 11.291
- GBP/JPY 133.07
- GBP/NOK 9.6088
- GBP/CHF 1.6216
- GBP/HKD 12.062
- EUR/USD 1.2784
Bank of England Minutes
Yesterday the minutes from the recent Bank of England decision to hold rates showed that the BoE rate-setters mulled the case for both easing and tightening policy this month before voting eight to one to keep interest rates at a record low of 0.5 %.
Monetary Policy Committee member Andrew Sentance called for a 25 basis point hike for the third month running, as he usually does.
The MPC also said that financial markets had improved since its last meeting, thanks largely to the European-wide bank stress tests, which increased confidence in the banking sector. “Sterling reacted to the minutes positively on the perception that quantitative easing risks receded,” said Paul Robson, currency strategist at RBS. As it’s unlikely further QE measures will be needed, it provided temporary support for Sterling, helping push exchange rates higher.
The gains have been short lived however. Given growth is going to slow due to the severity of the UK’s fiscal austerity package, and with lead indicators and consumer confidence already softening, we doubt the Bank will look to raise rates until next year at the earliest. As rates remain low, and other economies such as the EU and US start to raise rates before the UK, it’s likely that other currencies will become stronger, raising the risk Sterling exchange rates could fall.
Today’s Data that may affect rates
Retail Sales data from the UK this morning will show how confident consumers are as Retail Sales are widely followed as an indicator of consumer spending. German producer prices are also released today, following their surprise record growth last week. Jobless data from the USA rounds off the day.
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