Tag Archives: Quantitative Easing

Currency Update – Post Election

After Sterling’s initial bounce higher following the formation of a Conservative-Liberal Democrat coalition majority government the Pound has disappointed somewhat, particularly against the US Dollar which earlier slipped below 1.45. 

The sell off in Sterling started following the Bank of England’s Quarterly Inflation Report which implied that UK interest rates would remain very low for some time to come and are likely to rise only very modestly over the next two years. Furthermore, the Bank did not rule out the possibility of further Quantitative Easing. The combination of loose monetary policy and a tightening fiscal policy in the UK, suggests it is likely that the pound could be under pressure for some time.

Further falls for Sterling against the USD are now predicted by a number of analysts, with some pointing towards a break of 1.40. The ongoing debt crisis in the Eurozone is also expected to drag the Euro lower against the US Dollar; this will also be to the detriment of the Pound against the US Dollar.

Given the difficulties facing both the UK and the Eurozone, the outlook for the Pound against the Euro remains highly uncertain. However, given the significant structural problems of the Eurozone, I would suggest that the Pound will fair better against the Euro than against the other major currencies. GBPEUR currently trades at 1.16 on the interbank market.

Next week sees the release of several important pieces of economic data across the globe. In the UK we have the Consumer Price Index and Retail Price Index, Bank of England Minutes and Retail Sales. For a full economic calendar please visit: http://www.currencymatters.co.uk/market-data/economic-calendar/

 If you would like to discuss any upcoming foreign exchange requirements, please do not hesitate to contact the dealing team.  

GBP SPIKES HIGHER

The Pound has spiked higher this morning following better than expected UK employment data. The UK jobless claims change dropped at its fastest rate since November 1997.

The Bank of England Minutes also released this morning at 09:30 showed that all nine members of the Monetary Policy Committee (MPC) voted to keep UK interest rates on hold at 0.5% and furthermore were unanimous in their decision to keep the Asset Purchase Scheme known as Quantitative Easing at the current level of £200B.

Please do not hesitate to contact Currency Matters on +44 (0) 1695 581 669  for the latest exchange rates.

Currency Update – Sterling pressured

Sterling has started March under significant pressure. Monday morning saw a dramatic fall in the value of Sterling with the Pound falling as low as 1.0930 against the Euro and 1.4780 against the US Dollar. There are currently a number of factors contributing to Sterling’s sharp fall in value.

Firstly, the latest opinion polls are suggesting that following the UK general election, it is likely that we could see a hung parliament with no single party holding a workable majority. This political uncertainty has troubled investors as they are concerned that any new government may not be able to implement the measures needed to cut UK debt and revive the economy.

Secondly, the Bank of England has hinted recently that we could see further expansion of its asset purchase scheme known as quantitative easing (QE). Any increase in QE would likely depreciate Sterling further.

Finally, Prudential’s $35.5B bid for the Asian life insurance unit of AIG has caused large flows out of Sterling into the US Dollar.

Following Monday’s sharp falls, the pound has recovered some of its losses. This morning, the release of the latest Purchasing Manager Index (PMI) suggested that the UK service sector is recovering at a stronger rate than many analysts had expected. This has helped push Sterling back above the psychological level of 1.50 against the US Dollar and above1.10 against the Euro.

In the Eurozone, the Greek government has approved a fresh austerity package of tax rises and spending cuts worth €4.8B. This has gone a small way to help convince financial markets that Greece can pay off its massive debts. The Euro has risen against the US Dollar and currently trades above 1.36.

Elsewhere, The Reserve Bank of Australia has hiked their cash interest rate by 0.25% to 4%. The Bank of Canada left rates on hold at 0.25%. However, the Bank of Canada’s accompanying statement showed that the Bank was more upbeat on the economic outlook. This has forced Sterling to a low of 1.6491 against the Australian Dollar and 1.5387 against the Canadian Dollar.

Both the Bank of England and the European Central bank meet tomorrow at 12:00 and 12:45 respectively. The markets will eagerly await any announcement from the Bank of England regarding QE and the European Central Bank’s latest economic forecasts.

With all the uncertainty regarding the general election, the Bank of England’s QE programme and the UK’s ability to tackle the deficit, it is likely that Sterling will remain under pressure for some time.

If you have any upcoming foreign exchange requirements, please do not hesitate to contact the dealing team to discuss how best to manage your currency requirements and eliminate currency risk.

Currency News

Last week the currency markets were firmly focused on the Euro with the fiscal problems of Greece and also Spain and Portugal taking the headlines. Speculation built throughout the week that the other European Monetary Union states, led by Germany, would come to Greece’s aid. However, markets were clearly disappointed that whilst a rescue package was agreed in principle, European leaders failed to set out a comprehensive package.

The Euro was also pressured following the release of disappointing Eurozone GDP data. Total Eurozone 4th quarter 2009 GDP expanded by a mere 0.1%, the market had been expecting growth of 0.3%. Noticeably, German GDP (the largest European economy) failed to expand at all, whilst Italian GDP slipped back into contraction. Spain, hit by a housing market collapse and official unemployment greater than 20% remained in recession.

As a result, the single currency fell to a low of 1.3531 against the US Dollar, its lowest level since May 2009. The US Dollar, viewed as a safe haven, appreciated across the board as investors took flight from risk as stocks and gold prices tumbled. The Pound fell to 1.5534 against the US Dollar but rose past 1.15 against the Euro.

 In the UK the Bank of England released its Quarterly Inflation Report. The report was markedly pessimistic about the UK economy, revising its growth forecasts down. UK Interest rates are expected to stay low for a protracted period of time as growth remains weak and inflation is expected to fall back below the 2% target after initially spiking higher to 3%. Moreover, the Bank of England failed to rule out the possibility of extending its asset purchase scheme know as Quantitative Easing. Consequently, the Pound is expected to stay weak for some time. However, some gains could be made against the Euro, depending on how the Greek bailout develops. Sterling’s 25% depreciation should eventually help the UK economy grow as our exports become more competitive.

 Elsewhere, the Australian Dollar rallied following better than expected employment data with GBPAUD falling to 1.76. In China concerns over potential asset bubbles, led officials to order banks to increase their levels of reserves in a bid to cool the amount of lending.

Currency Update

Sterling has continued its recent climb following yesterday’s comments from Bank of England Monetary Policy Committee member Andrew Sentance, hinting that the Bank’s programme of Quantitative Easing may be put on hold.

Later today we eagerly await the European Central Bank interest rate decision at 12:45 and press conference at 13:30.

On the interbank market Cable (GBPUSD) has pushed through 1.6230 and currently trades at 1.6265, whilst the Pound is also trading above 1.12 against the Euro. EURUSD is currently trading just below 1.45 at 1.4493.

Currency Matters can offer a number of products and strategies which can help you manage your currency risk. Please contact the dealing team for more information.

 If you would like to discuss any upcoming foreign exchange requirements, please do not hesitate to contact the dealing team on 01695 581669.

 

 

Bank of England

The Bank of England has revealed today that it secretly lent RBS and HBOS a total of £62 billion in the form of Emergency Liquidity Assistance at the height of the credit crisis following the collapse of Lehman Brothers in the Autumn of 2008.

The Bank of England acts as the “lender of last resort” to financial institutions in difficulty in order to prevent a loss of confidence spreading through the financial system as a whole.

The Bank of England added “In most cases, confidence can best be sustained if the Bank’s support is disclosed only when the conditions that gave rise to potentially systemic disturbance have improved to a point where the disclosure itself should not be a cause of such disturbance.”

It is now viewed that since RBS has signed up to the government’s Asset Protection Scheme and Lloyds Banking Group which took over HBOS has embarked on an alternative strategy to raise further capital in a large rights issue “the Bank judges that there is no longer a need for the assistance to remain secret.”

In further comments to the Treasury Select Committee, Mervyn King the governor of the Bank of England has also stressed the need for the government to eliminate the structural budget deficit over the next parliament. Regarding monetary policy, Mervyn King said that over a period of two to three years the Bank of England would expect to tighten monetary policy by both hiking interest rates and selling some of the assets it had purchased under its Quantitative Easing programme. King argued that it’s hard to see how monetary policy could be more stimulatory, however noted that the Monetary Policy Committee would take any action it thought necessary to achieve the 2% inflation target in the medium term.

Taking into account a range of risks, Mervyn King currently expects that the UK economy will grow by 1.5% in 2010 and 3.0% in 2011.

King yet again took the opportunity to reiterate his support for a weak Pound, which should boost UK exports and help rebalance the UK economy.

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.

Currency Update

Risk appetite has returned to the market today as the latest GDP figures from the US suggest that the US is out of recession. The US GDP figures released earlier today beat market expectations with an annualised rate of 3.5% vs 3.2% expected. Whilst these figures are positive it remains to be seen how sustainable these levels of growth are, especially after the massive government stimulus has finished working itself through the economy.

The following improvement in confidence has led to safe haven currencies such as the USD and JPY coming under downward pressure.

Sterling has advanced through Interbank GBPUSD 1.65 and through Interbank GBPEUR 1.1100.

Expect plenty of volatility as we enter November as sentiment remains fickle. Both the Bank of England and the European Central Bank meet on November 5th. Analysts will be especially keen to see if the Bank of England extends its Quantitative Easing program and if so by how much. Some economists suggest that we could see an extension by as much as £50B but the consensus seems to suggest an extension of £25B is the most likely outcome.

Currency Matters can offer a number of products and strategies which help you manage your currency risk. Please contact the dealing team for more information.