Wednesday 17th July 2013
Good afternoon. It’s been an interesting week for Sterling exchange rates, with GBP/EUR falling to its lowest in more than 3 months, before recovering on positive news from the Bank of England this morning. In today’s post I’ll take a look at what has caused the swings in exchange rates.
Pound hits 3 month low vs. Euro
Earlier this week, poor inflation figures pushed Sterling lower, dropping into the €1.14’s against the Euro, which is its lowest in more than 3 months. The reason the Pound weakened is that the economic numbers lent support to the case for more monetary stimulus from the Bank of England.
It has been speculated for some time now, that the new BoE governor would pursue aggressive Quantitative Easing, which would weaken the Pound significantly. This view was not to last however, as today we saw the latest minutes from the Bank of England’s (BoE) Monetary Policy Committee (MPC) meeting.
Bank of England’s MPC vote unanimously to hold QE and interest rates, causing a surge in exchange rates.
The vote surprised those who were hoping to see signs of more stimulus measures from the Bank. Indeed I was expecting at least 2 or 3 of the members to continue voting for QE as has been the case for several months.
The fact that all 9 members decided against QE dampens speculation that Mr Carney’s arrival might prompt an injection of additional monetary stimulus sooner rather than later.
As you can see from the clear spike in today’s GBP/EUR chart, the news immediately sent Sterling over a point higher against the Euro, lifting the Pound from its recent slump.
Also sending the Pound higher was the news that UK unemployment fell by 57,000 to 2.51 million in the three months to May, the Office for National Statistics said. Ministers said it showed that recovery was taking hold, but critics said the human costs were still too high.
It seems that even with low growth rates, the UK economy can create jobs. Since this time last year about 300,000 more people are in work. And that continues to surprise economists. In past economic downturns. Unemployment has risen much higher – and fallen very slowly.
The better figures, combined with the BoE vote, has helped the Pound recover and exchange rates have risen as a result.
Things can turn around very quickly in the currency markets, and this is what we have seen today. Doom and gloom and a 3 month low has turned into economic optimism and a strengthening Pound, all within 24 hours.
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