Category Archives: Currency News

The Pound has remained stable …

The Pound has remained stable following the release of July’s Bank of England Monetary Policy Committee (MPC) minutes, trading at 1.13 against the Euro and at 1.61 against the US Dollar on the interbank market.

The minutes showed that the MPC remains split, with 7 members voting to keep interest rates unchanged at 0.50% whilst 2 members, Mr Spencer Dale and Dr Martin Weale called for a 0.25% hike. Dr Adam Posen remains the most dovish member of the MPC calling for a £50bn increase to the Bank’s £200bn Quantitative Easing Asset Purchase Programme. Most MPC members admitted that recent events had reduced the likelihood of any near term tightening to monetary policy. However, thankfully for Sterling, the majority of MPC members made no explicit reference to further Quantitative Easing.

The market will now focus on the ongoing European Sovereign debt crisis and the European Finance Ministers meeting and the continuing negotiations in the US Congress to increase the US debt ceiling.

Sterling falls following dovish Bank of England

The Pound has depreciated this morning (22/06/11) following the release of the latest minutes from the Bank of England Monetary Policy Committee (MPC). The minutes indicated that the Bank of England is less likely to raise interest rates this year, which makes Sterling less attractive to investors seeking higher yielding currencies*.  

The minutes show that out of the nine MPC members only two members voted for an interest rate hike, whilst seven members voted to keep interest rates unchanged at their record low for the 27th consecutive month. This was a change from the previous MPC meeting in May when three members had voted for a rate hike. The changing makeup of the MPC since Andrew Sentance’s departure after May’s meeting and the appointment of Ben Broadbent, who voted for a hold in June, points to a more dovish MPC. Andrew Sentance was consistently the most hawkish member of the MPC, being the first member to call for a 0.25% rate hike consistently since June 2010 and voting for a 0.50% hike at the last four meetings.

Whilst the Bank of England kept its Quantitative Easing Asset Purchase Programme on hold at £200 billion, the idea of further Quantitative Easing was floated by some members should the downside risks to inflation realise, further undermining Sterling’s value.

In the Eurozone, the Greek government won a critical vote of confidence, paving the way for the next crucial vote in which MPs will be asked to approve a €28 billion package of tax increases and spending cuts by June 28th. Laws implementing the reforms will need to be passed before the next extraordinary meeting of Eurozone finance ministers on the 3rd July in order to secure the next tranche of €12 billion of the EU and IMF’s €110 billion bailout package. It is essential for Greece to receive the €12 billion emergency loan in order to keep up with payments to her creditors totalling €340 billion. Without the €12 billion needed for Greece to make its debt repayments, Greece will likely default.

This evening the US Federal Reserve will announce its latest interest rate decision. Interest rates are expected to stay unchanged at their current level of 0-0.25%. However, tonight’s meeting also coincides with the expiry of the Federal Reserve’s current Quantitative Easing programme. The following press conference will be analysed for any suggestions of further Quantitative Easing in the future.

Currently Sterling is looking particularly vulnerable and further falls cannot be ruled out. Ongoing uncertainty surrounding the global economic recovery and the sovereign debt crisis in Europe means it is likely we will continue to see high levels of volatility in the foreign exchange market. Please do not hesitate to contact the dealing team for further information or to discuss how best to eliminate currency risk.

*Comparative World Interest Rates

Bank of Japan: 0.1%

Federal Reserve (USA): 0.25%

Swiss National Bank: 0.25%

Bank of England: 0.5%

Bank of Canada: 1%

European Central Bank: 1.25%

The Reserve Bank of Australia: 4.75%

People’s Bank of China: 6.06%

Brazil: 12.25%

COMPARING CURRENCY MATTERS WITH YOUR BANK

In a recent comparison conducted for one of our clients, Currency Matters saved them £1,579.29! Please find full details of the comparison below.

Currency Matters quote:

Client buys USD 100,000.00 @ 1.6305, client sells £61,330.88. No fees or commission charged.

High Street Bank Quote:

Client buys USD 100,000.00 @ 1.5902, client sells £62,885.17. + £25 fee = £62,910.17.

TOTAL SAVING: £1,579.29.

UK Inflation

The Pound has spiked higher this morning (17/05/11) following the release of higher than expected UK inflation data. The Consumer Price Index was up month on month at 1.0% and up year on year at 4.5%, compared to 0.3% and 4.0% respectively last month. UK inflation remains stubbornly above the 2% target and the Bank of England has suggested it could reach 5% before falling back in 2012.

Continued high inflation readings increase the probability of interest rate hikes from the Bank of England. Typically, as a central bank increases interest rates their currency will appreciate as global investors seek a higher yielding currency.

The Pound is up on the interbank market against the US Dollar at 1.62, against the Euro the Pound trades at 1.14. Please note the rate you are able to achieve will depend on the amount of currency being purchased. Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.

Interest Rates

Today (07/04/11) as expected the European Central Bank (ECB) has raised its benchmark interest rate by 0.25% to 1.25%, the first such increase since July 2008. The Bank of England has kept interest rates on hold for the 25th month at their historic low of 0.5% and the Bank’s Quantitative Easing Asset Purchase Programme remains at £200bn.

 The focus will now shift to the release of the minutes (due 20th April) of today’s BoE Monetary Policy Committee (MPC) meeting to see if any further MPC members have been swayed to the rate hike camp. At the previous meeting in March, six members voted to keep rates on hold whilst three members voted for an increase in interest rates. The conflict between above target inflation coupled with weak economic growth making the Bank’s decision difficult. The market will also seek further clarity on the future direction of ECB interest rates as there had been some suggestions that the hike today may be the first of a gradual increase in ECB interest rates.

Typically, as a central bank increases interest rates their currency will appreciate as global investors seek a higher yielding currency. The widening interest rate differential between the BoE and ECB has been a major contributing factor to Sterling’s relative weakness against the Euro despite the ongoing European sovereign debt crisis.

Comparative World Interest Rates

Bank of Japan: 0.1%

Federal Reserve (USA): 0.25%

Swiss National Bank: 0.25%

Bank of England: 0.5%

Bank of Canada: 1%

European Central Bank: 1.25%

The Reserve Bank of Australia: 4.75%

People’s Bank of China: 6.06%

Brazil: 11.75%

Stronger than expected UK PMI Services data

Sterling has spiked higher today (05/04/11) following the release of stronger than expected Purchasing Manager Index (PMI) Services data. The PMI Services data is an indicator of the economic situation in the UK service sector. The reading of 57.1 was better than the expected reading of 52.5 and better than the previous reading of 52.6. A reading above 50 signals expansion, whilst a reading below 50 signals a contraction in the UK service sector.

This week sees a raft of economic data releases and announcements. Later today the minutes of the Federal Open Market Committee are released which should give an insight into future US monetary policy. On Thursday both the Bank of England (BoE) and the European Central Bank (ECB) are set to announce their latest interest rate decision. The BoE is expected to keep interest rates on hold at their current historic low of 0.5% whilst the ECB is widely expected to hike rates. It is the expectation of rate hikes from the ECB which has contributed to recent relative Euro strength despite the ongoing sovereign debt crisis facing the Eurozone.

The Pound is up on the interbank market against the Euro at 1.14 and up against the US Dollar at 1.62. Please note the rate you are able to achieve will depend on the amount of currency being purchased, please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.

Currency Matters

The Pound has fallen today 23/03 following the release of minutes from the Bank of England showing that no further Monetary Policy Committee (MPC) members shifted to the rate hike camp at the March meeting of the MPC. Despite the higher than expected inflation reading released yesterday, there is still some uncertainty surrounding how quickly the Bank will increase interest rates from their historic lows. On the interbank market the Pound trades below 1.15 against the Euro and at 1.62 against the US Dollar.

In the UK Budget, as expected chancellor George Osborne announced that the Office for Budget Responsibility cut its growth forecast for 2011 from 2.1% to 1.7%. For 2012 the forecast was also cut from 2.6% to 2.5% with growth expected at 2.9% throughout 2013-2014 and at 2.8% in 2015. The Office for Budget Responsibility also acknowledged inflation would remain significantly above the 2% target, remaining between 4-5% this year before dropping to 2.5% next year and back to target in two years.

Regarding government borrowing; the forecast for this year is £146 billion, £2.5bn lower than the previous target. Borrowing is also forecasted to fall in 2012 to £122bn, then £101bn in 2012/13, £70bn in 2013/14, £46bn in 2014/15 and £29bn in 2015/16.

In other budget headlines, the chancellor announced an increase in the personal tax allowance of a further £630 to £8,015. The chancellor also suggested that the 50% top rate tax should be seen as a temporary measure and that the treasury would review how much the 50% rate raises. For businesses the chancellor announced that corporation tax would be cut by 2% in April but that the bank levy would be adjusted so that banks would not benefit from the reduction in corporation tax. Fuel duty is also to be cut by 1p per litre from 18:00 today whilst there are no changes to alcohol duty and tobacco duty will increase at 2% above inflation.

In Europe, the Portuguese government will this afternoon put its austerity measures to a parliamentary vote. The largest opposition party have already announced that they will present a draft resolution rejecting the austerity measures. Should the government loose the vote, it is likely the Prime Minister will resign triggering the dissolution of parliament and possibly international financial rescue and an EU bailout. The Euro is already under some downward pressure against the US Dollar and currently trades at 1.41.

Please do not hesitate to contact the dealing team on +44 (0)1695 581669 for a live quote or to discuss any of your foreign currency requirements for the coming months.

UK GDP DISAPPOINTS

The Pound has reacted negatively this morning to the revised UK GDP figures. Many analysts were hopeful that the disappointing UK GDP data numbers released at the end of January would be revised higher. However, the new data showed that the UK economy contracted by -0.6% in the final quarter of 2010 compared to the previous estimate of -0.5%.

Despite recent signs that the Bank of England Monetary policy Committee were shifting towards a hike in interest rates the highly disappointing data may mean a rise in interest rates may not come as soon as previously thought.

Currently the Pound trades in the region of 1.60 against the US Dollar and at 1.16 against the Euro.

Bank of England

Sterling has appreciated modestly this morning following the release of February’s Monetary Policy Committee (MPC) minutes by the Bank of England showing that interest rates were kept on hold by a 6-3 vote.

Bank of England chief economist Spencer Dale joined Andrew Sentance and Martin Weale in backing a rise in interest rates. Dale and Weale both voted for a 0.25% rate hike whilst Sentance strengthened his call for an interest rate hike from the Bank by voting for a 0.50% rate hike.

The remaining six MPC members voted to keep rates on hold. All members of the MPC with the exception of Adam Posen voted to keep the Bank’s Quantitative Easing (QE) programme on hold, whilst Posen voted for a further expansion in QE of £50 billion.

Whilst the Bank of England is clearly divided, the case for increasing interest rates is strengthening. The expectation of future rate hikes should help underpin Sterling’s value.

Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.

Better week for Sterling

This week has seen a number of better than expected pieces of UK economic data. The Purchasing Manager Index data released this week by Markit Economics has shown a better than expected expansion in the UK manufacturing, construction and service sectors. This data has eased concerns relating to the sustainability of the UK economic recovery and gives weight towards the prospect of an interest rate hike from the Bank of England later this year.

Elsewhere, the European Central Bank (ECB) continued to hold its interest rate at 1% and in the following press conference, ECB President Trichet was less hawkish than many analysts had expected, signalling that despite recent price rises he believed the current rate was appropriate. Any interest rate rise from the ECB in the near term now seems rather unlikely.

As a result the Pound has appreciated to 1.18 against the Euro and remains above 1.60 against the US Dollar.

The exchange rates mentioned in the above blog are based on the current interbank rate. The exchange rate you are able to achieve will depend on the amount of currency being purchased. Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.