20th October 2010
Good morning. Today is an important day, as we have not only the government spending review, but also the minutes to the recent Bank of England (BoE) minutes. We’ll look at how the spending review and BoE minutes may move exchange rates after the usual snapshot of where things stand at 08:30am:
- GBP/EUR 1.1394
- GBP/USD 1.5731
- GBP/AUD 1.6092
- GBP/NZD 2.1017
- GBP/CAD 1.6201
- GBP/CHF 1.5216
- GBP/ZAR 10.908
- GBP/HKD 12.205
- GBP/NOK 9.3064
- GBP/JPY 127.78
- EUR/USD 1.3800
Bank of England Governor speaks
Yesterday evening Mervyn King, the BoE Governor spoke Mr King was speaking to an audience in the West Midlands on the eve of the government’s Spending Review. He described the sober decade as one of “savings, orderly budgets, and equitable re-balancing”. The negative view will do little to support the pound, and it’s probably the case they are talking the pound down to try and weaken the currency to boost exports.
More Quantitative Easing?
Mr King also raised hopes that the Bank may inject more money into the economy through its process of quantitative easing (QE). He said that at present the amount of money in the economy was still “barely growing at all”.
He added that it was a “key role” for the Bank to provide stimulus when the economy was in need. The Bank has so far put £200bn into the economy through QE. Some economists now expect the Bank could inject at least another £100bn into the economy following the next meeting of its Monetary Policy Committee at the start of November.
Today the BoE minutes will show who voted for a rate increase, and who voted for more QE. We expect a 3 way split that will show a lack of consensus. It’s the fear of more QE that has pushed the pound down recently. Couple this with today’s spending review announcement and everything is pointing to a weaker pound.
Spending Review Today
It’s finally arrived. The UK’s “age of austerity” will begin in earnest today when the government announces the results of its Spending Review. It will give us the details of which government departments will need to cut their spending, and by how much.
With debt expected to reach £900bn (70% of GDP) in the coming years, the cuts are expected to be severe. This is at 12pm today, and if there are any surprises in the announcements expect Sterling to be affected.
If you need to buy or sell currency, contact us today to discuss the possible impact of the Spending Review and BoE minutes, and make sure you’re able to make a well informed decision on when to trade, and which type of contract to use.