Tag Archives: US Dollar

EURO

The Euro has continued to come under strong selling pressure as the European Central Bank has indicated that it will not accept Greek government bonds as collateral. EURUSD has fallen from the morning high of 1.2282 to a low of 1.2144. 1.2144 representing the lowest EURUSD exchange rate since June 2010 when the rate hit a low of 1.1876.

The Pound has made strong gains against the weakening Euro hitting a high earlier of 1.2866, the highest level since October 2008. Against the US Dollar the Pound tracked the sharp falls in EURUSD with GBP falling from 1.5724 to a low of 1.5626.

20/07/12 15:20

Bank of England Quarterly Inflation Report & Eurozone Bond Yields

Today’s Bank of England Quarterly Inflation Report has suggested that UK inflation has peaked and is likely to fall sharply from its current rate of 5% (down from 5.25% in the previous month September) to 1.3% over two years. The Bank has also cut its UK economic growth forecasts to 1% for 2011 & 2012 but indicated growth should climb towards 3.1% in two years.

Both the outlook to economic growth and inflation are seen as unusually uncertain and much will depend on developments in the Eurozone, the Eurozone debt crisis posing the single biggest risk to the UK economy.

Current forecasts suggest that UK interest rates are likely to remain low for a prolonged period of time with the first interest rate hike from the Bank of England not expected until at least 2013 whilst the prospect of further Quantitative Easing remains a strong possibility.

The debt crisis continues in Europe with Italian 10 year debt trading back above the unsustainable level of 7% and the yield of Spanish government bonds back above 6%. Besides the usual suspects, debt market yields of France, Austria, Netherlands and Belgium have also risen sharply, hitting Euro era highs. Moreover, the spread between French and German 10 year debt has also hit a fresh high.

Clearly the debt crisis poses a significant threat to the value of the Euro, the Euro has been surprisingly resilient so far but over the medium term I would expect the Euro to fall against the US Dollar and Sterling.

On the interbank market the Pound is currently trading between 1.57-1.58 against the US Dollar and between 1.16-1.17 against the Euro.

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

Bank of England Minutes

The Pound continues to trade either side of 1.14 against the Euro and around 1.57 against the US Dollar following the release of this morning’s Bank of England minutes.

The minutes showed that the Monetary Policy Committee (MPC) voted unanimously in favour of increasing its current Quantitative Easing Asset Purchase Programme by a further £75bn to £275bn.

The minutes revealed that the MPC considered extending Quantitative Easing between £50bn-£100bn.

The Bank of England’s next monetary policy decision is due on the 10th November. Despite the latest inflation data hitting 5.2%, 3.2% over the Bank’s 2% target. The Bank remains committed to its view that inflation should have peaked and will begin to fall back rapidly in 2012.

Risk Aversion

Markets have responded negatively following the Fed’s gloomy outlook for the US economy and announcement to launch limited measures designated to boost growth known as Operation Twist. Operation Twist does not inject any new money into the economy but the Fed will sell USD 400bn of short term bonds and buy USD 400bn longer term debt to lower the yield.

Risk aversion is a clear theme in today’s trading with sharp falls seen in global equities and oil trading back below $85 per barrel. Commodity currencies such as the Australian, Canadian and in particular the New Zealand dollar have weakened markedly on the negative global economic outlook. Whilst despite the negative outlook for the US economy, the US Dollar has appreciated on safe haven flows. Recent activity from the Swiss National Bank making the Swiss Franc less attractive for those seeking a safe haven.

The Pound has continued to slide against the US Dollar, trading at 1.54 on the interbank market.

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.

BoE & ECB

The Bank of England and the European Central Bank have both left their monetary policies unchanged today at 0.50% and 1.50% respectively as growth slows and the European debt crisis spreads to Italy and Spain.

The Pound is up against the Euro trading between 1.14 – 1.15 and in the region of 1.63 against the US Dollar. The Euro currently trades at 1.42 against the US Dollar.

The Pound has also appreciated against commodity currencies, passing 1.54 against the Australian Dollar and 1.58 against the Canadian Dollar.

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.

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%

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.