Tag Archives: Quantitative Easing

On Your Marks, Get Set, Manipulate

The G20 followed a similar line over the weekend to the one that was adopted by the G7 earlier last week, as finance ministers of the world’s largest economies commented in a joint statement: “We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes”. The fact that the statement was of a rather generic nature, and importantly didn’t specifically refer to Japan, has effectively given Japan the green light to continue its unofficial policy of Yen depreciation, and has potentially opened the door for other countries to follow suit. This lead to the Yen dropping against the Dollar yet again this morning as USD/JPY hit 94.21, nearing the low it reached on February 11th of 94.46, its lowest level in over two and half years.

Some ministers have begun to comment on the potential for ‘currency wars’ in recent weeks as countries actively pursue a weaker currency. However, Japan has reaffirmed today that its monetary easing policies are specifically targeted at ending deflation rather than purposefully trying to devalue the Yen in order to improve the countries global competitiveness, though currency devaluation coincidentally will be an inevitable side effect of such policies. However leading economist, and Nobel Prize winner, Paul Krugman, notes that the currency war issue is “a misconception and it would be a very bad thing if policy makers take it seriously”, and that “the stuff that’s now being called “currency wars” is almost surely a net plus for the world economy”.

Sterling is not fairing any better this morning following the G20 meeting as GBP/EUR is currently trading at 1.1585, having slightly rebounded from a daily low of 1.1562. Similarly Cable has also rebounded from a seven month low of 1.5437 this morning and is currently trading at 1.5470. Whilst the Pounds decline has made imports more expensive over the last month, BoE Monetary Policy Committee member Martin Weale commented last week that the weakening Pound would help improve Britain’s export prospects.

It is Presidents day in the US today, a Public holiday which means trading volumes will be lower and the economic calendar if rather light. However, this afternoon ECB president Mario Draghi will be making a speech. Market participants will be keen to see whether Mr Draghi will make any reference to a potential future interest rate cut. Such a move, which could well happen within the next few months as looser monetary policies have now seemingly been tacitly warranted by the G20, would help Sterling recover some of its recent losses against the common currency.

Mark Webster

Bye Bye Stimulus

There was little movement in the markets yesterday afternoon following the mixed employment data that came out of the US. That was until the FOMC dropped a bombshell yesterday evening. At 19:00 GMT yesterday the Federal Reserve released their FOMC minutes which suggested there could be an earlier than expected end to the current quantitative easing program. The Dollar strengthened right across the board following the release and both the Euro and Pound pared gains they had made earlier in the week against the Greenback following the fiscal cliff deal.

The announcement slightly panicked equity markets as concerns grew over potential interest rate increases and whether the US economy is actually capable of continuing its recovery without the steroid like effect that the QE program has had. However the comments represent a vote of confidence in the US economy by the Fed and the potential decrease in money supply and rise in interest rates are clearly bullish for the dollar. This was evidenced by the Greenbacks rise against the majority of its counterparts following the FOMC minutes release.

Earlier this morning we saw the release of UK economic data that showed the Markit Services PMI for last month fell to 48.9 and Net Lending to Individuals has dropped to £-0.1B. This caused a momentary spike lower in GBP/EUR as the Pound dropped off 20pips before recovering slightly, however the pair have continued to fall since and is currently trading at 1.2315.

Today is also Non-Farm Friday! We all know what this means – there could once again be some potentially market moving data coming out of the US. At 13:30 GMT the US Nonfarm Payrolls and Unemployment Rate will be released and both could trigger further movement in the Dollar. Cable is currently trading at a key price level having fallen through several areas of support this morning, before breaking beneath a six month upward trend line, as can be seen in the chart below. The next key level of support is at 1.6010 and should this price level be tested, and give way, this would be a strong indication that the rate will continue to drop below 1.60.

BoE and ECB

The Euro has retreated today after the European Central Bank kept rates unchanged at 0.75% and slashed its growth forecasts for 2013. Projected Eurozone growth is now expected to range between -0.9% and +0.3% suggesting that it is more than likely that the Eurozone economy will contract next year.

In the UK, the Bank of England as expected kept interest rates at 0.50% and the Bank’s Quantitative Easing Asset Purchase Programme was also maintained at £375bn.

As a result the Pound is up against the Euro by nearly 1 cent and currently trades at 1.2395 (0.8068) and the Euro is down 1 cent against the US Dollar at 1.2980. The Pound trades relatively flat against the US Dollar currently at 1.6090 on the interbank market.

Matthew Porter 15:15 06/12/12

From One Vote to Another

From one vote to another. Markets today will be bracing themselves once again for potential turmoil in the run up to another key vote, one that could cause much more movement than the US presidential election ever threatened.

We have become accustomed to leaders pleading and begging for votes over the last couple of weeks, however it is now a different leader in this position; Greek Prime Minister Antonis Samaras. As I have mentioned in previous blogs, Greece could face bankruptcy by the end of the month should they not secure further financial assistance. In order to obtain such funding the Greek government must vote to approve tough austerity measures that have been agreed with the Troika, with the first step of this process taking place today. Should this vote not be passed substantial uncertainty is likely to be seen within the markets with the Euro likely to suffer heavily as talks of a Greek exit will inevitably resurface.

The dollar is slightly down this morning against the Euro and Sterling following Barack Obamas re-election as US President. This may well be the result of market participants beginning to move away from the safety of the US dollar as uncertainty has now been reduced and risk appetite invariably increases. The Dollar has also potentially weakened based on the belief that President Obama’s win has paved the way for further monetary easing, that said however, round three of Quantitative Easing did not do much to weaken the Dollar as such policies have become to be expected and therefore are already priced in.

In comparison to the importance of the Greek austerity measures vote, there is little economic data out today of any real significance. However so far this morning EU retail sales figures have been released recording a drop of -0.8% which is slightly better than the market expectation of -1%. We will also see German Industrial Production figures released at 11:00 GMT which could move the markets slightly, however make no mistake, the key event today will be the outcome of the vote in Greece which has the potential to cause significant movement in the markets.

Mark Webster

ECB & BoE

The Euro has appreciated today following the European Central Bank’s decision to hold rates at 0.75%, pushing the Euro through the psychological level of 1.30 against the US Dollar and consolidating above 0.80p, currently at 0.8045, against the Pound.

Elsewhere, as expected the Bank of England voted to keep interest rates on hold at 0.50% and to continue with its programme of asset purchases known as Quantitative Easing (QE) at current levels totalling £375bn. Following the move in EUR/USD the Pound has ended the day up against the US Dollar at 1.6170 but down against the Euro at 1.2428.

Regarding the future direction of Bank of England rates and QE, and therefore the Pound’s value, focus will now turn to UK inflation data due to be released on 16th October and the minutes of today’s Bank of England meeting due to be published at 09:30 on Wednesday 17th October.

17:00 04.10.12

Currency Update

Yesterday Wednesday 15th saw Greece’s troubles resurface. With Greece facing a deepening recession, the Greek Prime Minister is set to meet with his French, German and Luxemburg counterparts next week to persuade Eurozone leaders to extend the period of austerity from two to four years, essentially planning to reduce the Greek budget deficit by 1.5% of GDP annually compared to the previous agreement of 2.5%. Due to the slower pace of deficit reduction it is believed an additional £20bn of funding would be required to support Greece.

In the UK, yesterday’s jobs figures continued to defy the recession with unemployment down to 8% and the claimant count dropping by 5,900 in July. Minutes released by the Bank of England also confirmed that the Monetary Policy Committee was unanimous in its decision to leave the bank rate unchanged at 0.5% and to maintain its Quantitative Easing Asset Purchase Programme at its current level of £375bn. Unlike in previous meetings, the bank did not hint towards a bias of further rate cuts giving Sterling a further boost. It is expected that the Bank will gauge the impact of the new Funding for Lending Scheme and the completion of its current £50bn extension of QE in November before it makes a decision on more monetary easing. Today, UK retail sales also beat market expectations growing by 2.8% year on year.

The better than expected news from the UK, coupled with the Eurozone’s on-going troubles has pushed GBPEUR higher towards 1.28, currently trading at 1.2793 (EURGBP 0.7817).

Elsewhere the Pound trades between 1.56-1.57 against the US Dollar and the Euro trades at 1.23-1.24 against the US Dollar on the interbank market.

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16/08/12 10:30

Contraction in UK GDP

The Pound has fallen back below 1.28 against the Euro and back below 1.55 against the US Dollar following this morning’s preliminary UK GDP data release. The data showed that the UK economy contracted much more than many economists expected.

In the second quarter UK economic output plummeted, contracting -0.7% quarter on quarter and contracting -0.8% year on year compared to a median forecast of -0.2% QoQ and -0.3% YoY. Whilst factors including the poor weather and the Jubilee bank holidays may have exaggerated the fall in GDP, underlying economic growth is expected to be close to flat or declining over 2012 despite a predicted improvement in the third quarter.

With UK inflation falling back towards the target of 2% (currently at 2.4%) and the economy in contraction, the likelihood of further Quantitative Easing and an even greater prolonged period of low Bank of England interest rates (currently 0.5%)has increased.

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11:00 25/07/12

BoE and ECB

As expected the Bank of England has increased its programme of Quantitative Easing by an additional £50bn taking the total asset purchase scheme to £375bn. The Bank also decided to hold the bank rate at 0.50%.

In Europe, the European Central Bank cut its key interest rate by 0.25% to 0.75% a record low.

On the interbank market the Pound has climbed back above 1.25 against the Euro, currently at 1.2525. Whilst the Euro has fallen back below 1.25 against the US Dollar and currently trades at 1.2440. The Pound continues to trade between 1.55 and 1.56 against the US Dollar.

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05/07/12 13:10

Bank of England

Minutes released today by the Bank of England have revealed that the Bank came close to extending its programme of Quantitative Easing (QE) as four of the nine member Monetary Policy Committee voted to extend QE. Three members including Bank of England governor Mervyn King voted to extend QE by an additional £50bn whilst one member voted for a smaller addition of £25bn. The Bank also considered the merits of cutting the Bank Rate from 0.50% but concluded that a rate cut had no advantages over more QE.

As previously discussed, further QE from the Bank of England continues to pose a risk to Sterling’s value. On release of the minutes at 09:30 the Pound fell back below 1.24 against the Euro hitting a low of 1.2350 and back below 1.57 against the US Dollar hitting a low of 1.5650 before recovering back to 1.5730 against the US Dollar and 1.2385 against the Euro.

10:00 20/06/12

GBPEUR @ its highest level since 2008.

The Pound has appreciated following today’s Bank of England announcement that the Monetary Policy Committee has kept interest rates unchanged at 0.50% and Quantitative Easing at its current level of £325bn. Whilst this was widely expected, the possible threat of further QE always poses a threat to the value of the Pound and as such the market was reassured by the announcement and the Pound has appreciated.

Because of the continuing economic and political woes facing the Eurozone the Pound has now appreciated to its highest level against the Euro since November 2008, hitting an interbank high of 1.2496 earlier today.

Currency Matters can offer a number of products which can help you plan your future currency requirements. By using a Forward Contract it is possible to purchase currency today at a guaranteed exchange rate for settlement at a later date. A small deposit is required to secure a Forward Contract with the balance due by the agreed future value date.

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