Tag Archives: Fed

Federal Reserve & US Dollar

Ben Bernanke, Chairman of the Federal Reserve has indicated that there will be no immediate monetary stimulus but that the Federal Reserve will consider the use of all its monetary tools at their next meeting in September.

“The Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (20th-21st September) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.” Ben Bernanke, Chairman Federal Reserve.

Currently the Pound trades lower against the US Dollar at 1.6230.

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%

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 US Dollar has continued to fall following Tuesday’s meeting of the Federal Reserve. At the meeting the Federal Reserve kept interest rates on hold at 0.00-0.25% and kept quantitative easing at current levels. However, the Federal Reserve opened the door to the possibility of additional quantitative easing indicating that it would be prepared to provide additional accommodation if needed to support a fragile economic recovery.

 On the interbank market GBPUSD currently trades above 1.56 whilst EURUSD trades at 1.33.

 In the UK, Sterling has come under some downward pressure following the release of recent disappointing economic data including poor retail sales and higher than expected government borrowing, which totalled £15.3 billion in August. The Bank of England Minutes released this week showed that the Monetary Policy Committee voted to keep both interest rates on hold at 0.5% and its Quantitative Easing Asset Purchase Scheme at £200 billion. The minutes made no clear indication that further Quantitative Easing (Q.E.) would be needed however many analysts interpreted that the chances of further Q.E. had increased since the previous meeting. The Bank of England remains torn between trying to support a fragile economic recovery, whilst trying to anchor inflation which remains stubbornly above the 2% target.

 As a result of the above, extreme volatility has been seen in the GBPEUR exchange rate, yesterday hitting its lowest level since May before recovering slightly today. The current GBPEUR interbank rate trades at 1.17.

 Given current market volatility, please do not hesitate to contact Currency Matters to discuss any foreign currency exchange requirement. Currency Matters can provide a number of products including Forward Contracts and Stop Loss/Limit Orders which can help you manage your foreign currency exchange risk. The exchange rates mentioned in the above blog are based on the current interbank rate. Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.

US Dollar

The US Dollar has fallen sharply late this afternoon (14/09/10) following a report from Goldman Sachs suggesting that the Federal Reserve could announce a new program of asset purchases (quantitative easing) in order to support the weak economy and to try and avoid a double dip recession.

The Euro has made strong gains against the US Dollar, forcing EURUSD nearly two cents higher to a high so far of 1.3021. This has caused some volatility in EURGBP which currently trades at 0.8360 (1.1962) on the interbank market.

The Pound has also made gains against the USD pushing the interbank rate through 1.55.

Given current market volatility, please do not hesitate to contact Currency Matters to discuss any foreign currency exchange requirement.

Currency Matters – Euro

The Euro was boosted last week by the successful bond auctions by a number of Eurozone states.  The demand was sufficient enough to ease concerns that Eurozone states would struggle to raise funds on the international markets.

As a result the Euro appreciated against the US Dollar pushing EURUSD through 1.30, and EURGBP through 0.84p. This morning EURGBP trades at interbank 0.8475, forcing the pound below 1.18.

Many analysts are now predicting that the Euro could continue to recover. However, the sustainability of the Euro’s rebound remains uncertain. The Euro will face a number of significant tests including the European bank stress test results which are due to be published on June 23rd.

Elsewhere the Federal Reserve minutes hit a rather dovish tone noting that the economic outlook had softened somewhat. Interest rates in the US are therefore expected to remain at their historic lows for some time. After hitting a high above 1.54, the pound has since settled around 1.52 on the interbank market.

Currency Update

The US Dollar has continued to appreciate following last night’s unexpected announcement by the Federal Reserve to increase its Discount Rate by 0.25% to 0.75%. The Discount Rate is the rate US banks are charged at to borrow emergency funding from the Federal Reserve. The Target Rate that banks usually borrow at remains on hold at 0-0.25%. The move whilst largely symbolic, confirms that the Fed is starting to realise its exit strategy towards a return to more ‘traditional’ monetary policy. However, it is expected that the Fed may not tighten official monetary policy until the autumn.  Nonetheless, the US Dollar has appreciated strongly, pushing GBPUSD below 1.54, whilst EURUSD trades around 1.35 on the interbank market.

In the UK, the Pound took a fresh blow following this morning’s disappointing retail sales and yesterday’s public sector net borrowing figures, which showed that the UK government had to borrow £4.3B in January, a month which usually posts a surplus. UK tax receipts dropped by 11.8% compared with January last year. 

The debate also continues regarding the suitable timing of any UK government spending cuts. In an open letter to the Financial Times more than 60 senior economists backed Chancellor Alistair Darling’s decision to delay any government spending cuts until 2011, fearing that any earlier cuts could force the UK back into recession. This was as a direct riposte to a letter sent last weekend to The Sunday Times by a group of 20 leading economists supporting the argument that more rapid action to tackle Britain’s deficit was needed and that fiscal tightening should start this year.

Currency Update

The US Dollar remains under pressure as gold soars past $1,130 an ounce. EURUSD climbed as high as 1.4993 and has now settled around 1.4970. The Pound has also had a good day against the US Dollar hitting an interbank high of 1.6780 so far. The markets will now be eyeing Fed Chairman Ben Bernanke’s speech due later today at 17:15.

Over the weekend GDP figures released from Japan smashed market expectations posting third quarter growth at 4.8%. Of course this can largely be attributed to the massive government stimulus package so it is unlikely that these levels of growth will be sustainable.

Sterling will face a number of tests this week as the Bank of England’s Quantitative Easing Programme will take the limelight again. UK inflation data is due tomorrow (17/11) morning at 09:30 whilst the Bank of England Minutes from November’s Monetary Policy Committee (MPC) meeting will be released at 09:30 on Wednesday 18th November.