Pound falls on bank tax levy

9th February 2011
Good morning. Yesterday an increase in Britain’s tax levy on banks hurt the pound, and exchange rates against the Euro and US Dollar fell throughout the day. At 08:30am this morning rates are as follows:

  • GBP/EUR 1.1786
  • GBP/USD 1.6096
  • GBP/AUD 1.5888
  • GBP/NZD 2.0842
  • GBP/CAD 1.5995
  • GBP/CHF 1.5526
  • GBP/ZAR 11.596
  • GBP/JPY 132.63
  • GBP/HUF 317.94
  • EUR/USD 1.3652

Sterling falls on Bank tax levy

Yesterday the UK put an extra £800m tax on banks, taking a much harder line on the banking sector as they try to do a deal to curb bonuses and free up business lending. The government said it will impose the full amount of a planned levy on bank balance sheets this year, instead of phasing it in. The news did not help the pound, and as a result exchange rates fell steadily all day.

“The bank levy announcement put the equity market under pressure, and it’s taken the steam out of sterling today,” said Ian Stannard, senior currency strategist at BNP Paribas. “We think sterling’s going to struggle now given the extent of the rate hikes that have been priced in. Things are swinging back to sterling reacting more to negative news,” he added.

In recent weeks the pound has risen on the expectation interest rates would go up this year earlier than expected. This has been priced into the market and focus is now shifting to the bad news surrounding the UK, and that’s why Sterling is falling.

Interest Rate decision tomorrow

Tomorrow the Bank of England announce their latest interest rate decision. It’s likely rates will yet again be left on hold at 0.5%. It’s March 2009 since rates were changed.

There’s a very good article from the BBC today on the effect of interest rates on the value of the Pound. You can read this here.

Most analysts seeing little chance of a change and attention focused more on next week’s inflation data and quarterly BoE inflation report for any clues to the timing of future monetary tightening.

Today’s Data

Very quiet day with only German Trade Balance figures. This is a balance between imports and exports. A Steady demand for German exports would strengthen the Euro, making it more expensive to purchase.

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