The Pound has fallen this morning, most notably against the US Dollar, as UK Consumer Price Index data confirms UK inflation slowed to the least in five years last month at 1.2%, adding pressure on the Bank of England to keep interest rates at record lows for longer. Lower UK interest rates make the Pound less attractive to international investors seeking higher yield. The perception earlier this year that the Bank of England may raise rates in early 2015 had helped the Pound to appreciate to a high of 1.7191 in July against the US Dollar and 1.2875 against the Euro as recently as 1st October. As the market increasingly begins to price out imminent Bank of England rate rises the Pound trades today as low as 1.5948 against the US Dollar and as low as 1.2570 against the Euro.
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The Pound surged higher following Scotland’s decision to remain in the United Kingdom with GBP/EUR hitting a two year high at 1.2802 before falling back to 1.2706 (EUR/GBP 0.7870). GBP/USD soared to a high of 1.6523 before meeting resistance and falling back to 1.6354 and currently trades at 1.6390 in mid-morning UK trading. With the Japanese Yen performing badly this month following the Japanese government’s economic forecast downgrade the Pound hit its highest level against the Japanese Yen since October 2008, pushing GBP/JPY through 180 to a high of 180.70 before falling back to around 178 Yen to the Pound.
With the risk of Scottish independence out of the way the focus now turns back to the strength of the UK economic recovery and the timing of any rate hike from the Bank of England.
The Euro has depreciated sharply today following the European Central Bank’s (ECB) decision to cut the benchmark interest rate by another 0.10% to a new record low of 0.05%. The deposit rate was also lowered further into negative territory to -0.20%. ECB President Mario Draghi also announced the ECB will launch an asset purchase programme; buying debts from banks in a move that is hoped will add liquidity into the financial system and revive lending.
The Euro fell more than 1% against both the US Dollar and British Pound. Falling back below 1.30 against the US Dollar, hitting a low so far of 1.2969 and to a low of 0.7905 (1.2650) against the Pound. Further action including more aggressive stimulus measures such as Quantitative Easing from the ECB is still possible in the future.
The USD has appreciated overnight after minutes released by the Federal Open Market Committee (FOMC) showed that the US central bank was gradually taking a more hawkish stance as economic conditions (labour market and inflation) begin to normalise to levels last seen before the financial crisis.
The growing prospect of interest rate rises in the US coming sooner than expected have caused the USD to appreciate, forcing GBP/USD back below 1.66, hitting a low of 1.6565 so far and forcing the EUR down against the USD to 1.3242. Against the Yen the USD also appreciated sharply with USD/JPY hitting a high of 103.96.
The Pound depreciated further today following the release of the Bank’s Quarterly Inflation Report as markets pushed back Bank of England interest rate hike expectations well into 2015. Whilst the Bank revised UK GDP growth forecasts up to 3.5%, they highlighted heightened uncertainty regarding slack in the economy, increased global geo-political risks and the weakness of UK wage growth.
The Pound is currently trading down 0.6% @ 1.6710 against the US Dollar and down 0.75% @ 1.2478 against the Euro.
GBPAUD 1.7937 | GBPCAD 1.8241 | GBPCHF 1.5143 | GBPEUR 1.2478 | GBPJPY 171.03 | GBPUSD 1.6710.
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Stock markets across Europe and America have fallen as shares in one of Portugal’s largest banks were suspended after falling more than 17% after reports that their parent company missed some short term debt repayments, a reminder that the European banking crisis may not be over.
With US interest rates set to stay near zero this year and the market looking for safe havens the Japanese Yen appreciated sharply, forcing USD/JPY from a high of 101.66 to 101.07 before recovering slightly to 101.18, still down 0.42%. The Euro has fallen but has remained surprisingly resilient, falling against the USD from 1.3649 and currently trading at 1.3597 but could be susceptible to further falls should confidence in the Portuguese banking system and the wider Eurozone continue to deteriorate.
In the UK, the Pound is relatively steady after the Bank of England voted to maintain the Bank Rate at 0.50% and maintain its asset purchases at £375bn. GBP/USD has traded between 1.7106 and 1.7122. GBP/EUR has appreciated from 1.2551 this morning currently at a high of 1.2595.
In an effort to encourage lending, stimulate the Eurozone economy and avoid deflation the European Central Bank (ECB) today cut its main benchmark rate from 0.25% to 0.15%. More significantly the ECB cut its deposit rate from 0.00% to minus 0.10% meaning that commericial banks will have to pay the ECB to lodge their money with the central bank in a bid to incentivise banks to lend to businesses rather than hoard cash at the ECB, therefore stimulating economic growth. The ECB also exteneded its programme of long term loans offerd to banks who lend to businesses. ECB President Mario Draghi indicated that further measures could be introduced in the future.
Following the ECB announcement and the following press conference the Euro fell from a high of 1.3643 to a low of 1.3504 before recovering to just below 1.36 by 14:00 GMT. Against the Pound the Euro fell from 0.8139 (1.2286) to a low of 0.8065 (1.2399) before appreciating back towards 0.81p by 14:00 GMT.
Elsewehere, as expected the Bank of England maintained its Bank Rate at 0.50% and the size of its Assett Purchase Programme at £375bn. We now await the minutes of that meeting due to be released 08:30 GMT on Wednesday 18th June to gain an insight into if the Bank of England is any nearer to raising UK internest rates. The Pound continues to trade between 1.67 and 1.68 against the US Dollar.
Minutes released today from the Bank of England meeting held 7-8th May 2014 show that the Monetary Policy Committee (MPC) voted unaminously to maintain the Bank Rate at 0.50% and maintain the stock of purchased assets financed by the issuance of central bank reserves, known as Quantitative Easing at £375 billion. Whilst the vote was unaminous to hold rates the minutes indicated that some MPC members are beginning to think that the time may be close for an interest rate rise. The prospect of an interest rate rise makes the Pound more attractive and can be attributed to the Pound’s strong performance. Following the release of the minutes and coupled with strong UK retail sales data the Pound appreciated to a high of 1.6920 against the US Dollar and to 1.2340 against the Euro, before retracing slightly against both currencies.
As expected The Bank of England’s Monetary Policy Committee (MPC) voted to maintain the Bank Rate at 0.50%. The MPC also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves, known as Quantitative Easing, at £375 billion.
The Pound remains well supported and trades near the recent highs. At 12:30 the Pound was trading on the interbank market at 1.6777 against the US Dollar and at 1.2095 against the Euro.
The Euro is trading weaker against most currencies this morning as market participants anticipate today’s European Central Bank (ECB) interest rate decision at 1145 (GMT) and the post-meeting press conference by ECB President Mario Draghi. The general consensus indicates that the ECB will not change interest rates at its policy meeting today however there has been building speculation that the ECB may ease monetary policy and this has the support of some policymakers and IMF Managing Director Christine Lagarde.
This morning EURUSD traded at 1.3767 and EURGBP traded at 0.8280 (1.2077). Please do not hesitate to contact the dealing desk on +44 (0) 1695 581 669 or firstname.lastname@example.org for a live quote or for further market information.