Sterling falls against Euro & USD on QE concerns

Tuesday 20th September 2011
Good morning. Sterling fell against both the Euro and US Dollar yesterday. This is due to uncertainty in Europe pushing investors back to the safe haven US Dollar. GBP/EUR rates fell as there are concerns there may be mention of Quantitative Easing by the Bank of England this week. This is how rates fared for GBP/EUR and GBP/USD during trading yesterday:

Pound falls to 8 month low vs US Dollar

Sterling hit a new 8 month low against the dollar yesterday, tracking losses in the euro which fell as concerns over policymakers’ lack of progress on the euro zone debt crisis fuelled demand for the relative safe haven of the greenback. The increased demand for the USD strengthened it, making it more expensive and pushing GBP/USD rates down.

“There is increasing uncertainty over where the policy response in the euro zone crisis is going to come from, which means safety first as people continue to sell equities and the dollar is king,” said Chris Turner, head of FX strategy at ING.

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Pound vs Euro rates drop on QE concerns

Speculation that Bank of England minutes which will be released this Wednesday will indicate policymakers are considering further quantitative easing also weighed on the pound. Further QE measures would flood the market with the UK currency and reduce demand. This has caused Sterling to fall as investors position themselves for such a move.

Investors have been pricing in such a move from the BoE as recent comments from policymakers appear to signal they are increasingly ready to vote for further monetary stimulus to boost lacklustre UK economic growth. It’s due to these reasons exchange rates fell slightly through trading yesterday.

Today’s Data

In the EU, we see lots of figures from Germany including inflation data, and German and EU economic sentiment surveys. In the US we have an interest rate decision & the FOMC minutes. We also see RBA minutes which could affect GBP/AUD rates. There is no data of note from the UK today.

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