Tag Archives: Quantitative Easing

BoE Minutes & UK unemployment data

The Pound has fallen this morning following the release of Bank of England Minutes and UK employment data. The Pound now trades back below 1.14 against the Euro and below 1.64 against the US Dollar.

The Bank of England Minutes revealed that all nine members of the Monetary Policy Committee (MPC) voted to keep interest rates unchanged at 0.5%, previously two members Martin Weale and Spencer Dale had called for a 0.25% rate hike. Adam Posen continued to be the only member who voted for an expansion of the Bank’s Asset Purchase Programme known as Quantitative Easing. Whilst Quantitative Easing remains at £200bn, some members of the MPC did consider the case for more Quantitative Easing. This softening in the Bank of England’s stance has weighed on Sterling.

Whilst data from the Office for National Statistics showed an increase in the claimant count and an increase in the UK unemployment rate from 7.7% to 7.9% further undermining confidence in the UK economy and Sterling.

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%

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%

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.

Currency Update

Following the release of minutes from the Bank of England Monetary Policy Committee (MPC) and the Government’s Spending Review, the Pound has remained relatively stable near its current levels in the region of 1.13 against the Euro and 1.57 against the US Dollar.

The Bank of England Minutes confirmed that there was a three way split in the nine member MPC October meeting. Seven members voted to keep interest rates and quantitative easing (QE) on hold, whilst one member voted for a 0.25% interest rate hike, whereas Mr Posen voted for a £50 billion extension of QE.

The minutes indicated that whilst the clear majority of MPC members did not see the case for further QE at present, they did indicate that the chance of further QE in the future had increased. Going forward the prospect of further QE and low interest rates will continue to weigh on Sterling’s value.

During the UK Spending Review, Chancellor George Osbourne unveiled the largest UK spending cuts since World War II. Departmental budget cuts averaged 19%, which was less severe than the 25% cuts expected, largely thanks to an additional £7 billion found in savings to the welfare budget. The Spending Review aims to cut £81 billion from public spending over four years.

The exchange rates mentioned in the above blog are based on the current interbank rates. Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.

Sterling

This week we have seen the Pound fall further against the Euro as the probability of further Quantitative Easing (QE) from the Bank of England increased. Earlier in the week Mr Posen a member of the Bank’s Monetary Policy Committee (MPC) became the first member of the MPC to openly call for further QE since November. However, today his tone seems to have softened suggesting that the other MPC members may be able to convince him that his calls for further QE are premature.

Whilst further QE is by no means a foregone conclusion, the increased risk of further QE has weighed significantly on the Pound. Despite a raft of bad news from the Euro-zone; including the downgrading of Spain’s credit rating from AAA to AA1 and the mounting costs of  the Irish bailout of Anglo Irish bank, the Euro has appreciated strongly against the Pound, trading above 0.86p (GBPEUR 1.15).

Further falls in Sterling could be seen, particularly if support for further QE gains momentum. Many analysts are now predicting that GBPEUR could fall further, with 1.12 being noted as the next downside level.

Given the current uncertainty surrounding the Pound, you may deem it appropriate to hedge against any future falls in the Pound’s value. Currency Matters can suggest a number of products and strategies which can eliminate currency risk. Please do not hesitate to contact the dealing team to discuss any upcoming currency requirements.

The exchange rates mentioned in the above email 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.

 

 

 

 

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.

Bank of England

The Bank of England has today kept UK interest rates on hold at 0.5% and the Bank’s current asset purchase scheme known as quantitative easing also remains on hold at £200 billion.

The Pound continues to look firm against the US Dollar trading above 1.58 on the interbank market and against the Euro the pound trades near 1.20.

The market will now await the European Central Bank announcement later today and on Friday the latest US employment data will be released.

Please do not hesitate to contact Currency Matters for a live quote. Please note the exchange rate you are able to achieve will depend on the amount being exchanged.