Category Archives: Currency News

ECB & BoE Reaction: EUR Lower

The European Central Bank (ECB) will start its new government bond-buying programme on 9th March hoping to boost growth and lift inflation in the ailing Eurozone. The ECB plans to spend €60bn a month on buying sovereign bonds and some private sector assets with the purchases likely to last until at least September 2016.

In the UK the Bank of England (BoE) kept rates unchanged, meaning they have now been at their record low of 0.50% for six years. Whist none of the leading economists polled by Reuters expect the Bank of England Monetary Policy Committee to raise rates before the UK general election in May, there are some expectations that the BoE may increase rates sooner than currently forecast by the markets meaning that the ECB and BoE could have diverging monetary policies, thus supporting the Pound further against the Euro.

The Euro (EUR) fell to its lowest level against the US Dollar (USD) in over 11 years hitting a low so far of 1.1008 on the interbank market. The Euro also fell against the Pound (GBP) with EUR/GBP hitting a low of 0.7224 (GBP/EUR high 1.3842).

EUROPEAN CENTRAL BANK LAUNCHES €1.1 TRILLION STIMULUS

The Euro has weakened across the board as European Central Bank (ECB) President Mario Draghi launched an expanded asset purchase program, committing to €60bn of private and public debt asset purchases every month from March 2015 to September 2016. The policy was larger than market expectations which predicted asset purchase totalling €50bn per month.

Following the announcement the Euro plunged to its lowest level in over 11 years against the US Dollar with EUR/USD trading as low as 1.1402. The Euro also fell against the Pound with EUR/GBP hitting a low of 0.7566 (GBP/EUR 1.3217). The Euro continues to trade around parity against the Swiss Franc trading today between 0.9846-1.0033.

POUND LOWER FOLLOWING BANK OF ENGLAND MINUTES

The Pound has fallen following the release of the latest minutes from the Bank of England as all 9 Monetary Policy Committee members voted to hold UK interest rates at their low of 0.50%. In previous meetings 2 members had voted for an increase in the Bank of England interest rate. These minutes have reinforced recent market expectations that it is now unlikely that the Bank of England will increase interest rates in 2015 making the Pound less attractive.

The Pound fell against the US Dollar from an earlier GBP/USD high of 1.5180 to 1.5077 before recovering back to 1.51 whilst against the Euro the Pound fell from GBP/EUR 1.3125 to 1.3020 before recovering back above 1.3050.

Elsewhere the Euro continues to trade at its lowest level against the US Dollar since 2003 trading in the 1.15s and the Swiss Franc remains strong with EUR/CHF trading near parity at 1.0009 and USD/CHF trading at 0.8650.

THE SWISS NATIONAL BANK (SNB) DISCONTINUES MINIMUM EXCHANGE RATE

The Swiss National Bank (SNB) shocked financial markets on Thursday by scrapping a 3 year old cap on the Franc (CHF), sending the Franc soaring against the Euro (EUR). At one stage the Franc had appreciated nearly 30% in value against the Euro, with EUR/CHF falling from 1.2011 to 0.8597 before recovering nearly 15% back to 1.01. The Franc also dropped dramatically against the US Dollar (USD) with USD/CHF falling from 1.0220 to 0.7407 before recovering to 0.87.

As the SNB removed the upper limit on EUR/CHF, the SNB sought to discourage new flows into the Franc by cutting its sight deposit rate from -0.25% to -0.75% making it more expensive for banks and investors to hold the Franc.

The dramatic change in policy from the SNB comes a week before the European Central Bank (ECB) is expected to unveil a bond buying programme to counter deflationary pressures, feeding speculation that the ECB Quantitative Easing (QE) scheme could be so big that the SNB would have struggled to defend the EUR/CHF cap. The Euro was forced lower across the board with EUR/USD falling to 1.1567 before recovering back to 1.16 and EUR/GBP falling to 0.7623 (GBP/EUR 1.3118).

A full copy of the SNB press release can be found at: http://www.snb.ch/en/mmr/reference/pre_20150115/source/pre_20150115.en.pdf

WEAK US RETAIL SALES DATA FORCES USD LOWER

The US Dollar (USD) has lost some of its recent gains following this afternoon’s release of much weaker than anticipated US retail sales data. EUR/USD recovered from 1.1728 to 1.1845, whilst GBP/USD rose from 1.5145 to 1.5267. USD/CHF fell from 1.0238 to 1.0139 and USD/JPY fell from 117.96 to 116.08.
Market focus now turns to European and US Inflation data released on Friday 16/01/15.

USD Strength

The US Dollar remains supported as US employment data beat expectations with the US employment rate falling from 5.8% to 5.6% the lowest level since June 2008. The Federal Reserve has held interest rates near zero since 2008 but expectations are increasing that the Federal Reserve will start to increase interest rates this year, possibly in the second quarter.
This coupled with the expectation that the European Central Bank will ease monetary policy has forced EUR/USD to its lowest levels since December 2005, hitting a low of 1763.
In the UK the Pound was supported earlier this morning by better than expected manufacturing and trade balance data pushing GBP/EUR to a high of 1.2844 and GBP/USD up to 1.5174 before receding to 1.2820 and 1.5096.

USD & CHF REACT TO FED & SNB

The US Dollar (USD) gained overnight as the Federal Reserve kept rates near zero and sounded more optimistic on the economy whilst maintaining their pledge to be patient on increasing interest rates. The Dollar appreciated against the Euro and the Pound forcing EUR/USD to a low of 1.2266 and GBP/USD to 1.5551.

In Europe, the Swiss Franc (CHF) has depreciated sharply today as the Swiss National Bank (SNB) introduced negative rates to try and stem the rise of the Franc pushing EUR/CHF from 1.2009 to a high of 1.2097 before settling around 1.2045. The US Dollar also gained against the Franc with USD/CHF appreciating from 0.9722 to 0.9846.

USD Strength as Fed ends Quantitative Easing programme

The USD has appreciated following the Federal Reserve’s announcement that its programme of Quantitative Easing (QE) will end. Despite the global economic slowdown, the Federal Open Market Committee (FOMC) were generally more upbeat about the underlying strength of the US economy than in previous months but did state that interest rates would remain on hold at their current lows for a considerable time.

The Dollar has appreciated against the Pound, forcing GBP/USD back below 1.60, hitting a low of 1.5962 so far. Against the Euro and Swiss Franc the US Dollar has also advanced forcing EUR/USD down to 1.2556 and USD/CHF up to 0.9606.

A copy of the FOMC Statement can be found below:

http://federalreserve.gov/newsevents/press/monetary/20141029a.htm

October 29 2014

 

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee’s longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Loretta J. Mester; Charles I. Plosser; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.

 

 

Pound Falls as UK Inflation Slows

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.

Please do not hesitate to contact the dealing team on telephone +44 (0)1695 581 669 for further information or for a live quote. Currency Matters can offer you the best currency exchange rates available.

United Kingdom: Sterling Strength

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.