Central Banks Remain Cautious

5 July, 2013

Simon Eastman

Yesterday was all about the two central bank decisions for UK and Europe with the first meeting for new BoE governor Mark Carney eagerly anticipated. Would the new arrival look to shake things up from the start was the question the markets were asking.

The answer was no, as come midday, the announcement released by the BoE showed no change to the interest rates (fully expected) along with no change in the asset purchase program (less so expected). The result for sterling was a free fall across the board. Anyone looking to send money overseas would have noticed a severe increase in the cost of their chosen currency, with the pound losing 2 cents against the US dollar and euro within a 10 minute period. To put this in perspective, if you were looking to send €200,000 to France and traded in the morning it would have cost you £2,350 less than if you had waited until after lunchtime!

The reason for the drop was the accompanying statement from the Bank stating recovery “remains weak by historical standards and a degree of slack is expected to persist for some time”. They also commented that recent positivity has been tempered by the long term cost of borrowing in global markets and as such “the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy”. Basically, interest rates are looking like they will stay low for a significant period of time.
While the markets digested the comments and sold off sterling accordingly the ECB convened and released their policy statement. No changes here either, as expected, despite recent confusing comments over lowering interest rates again. The subsequent press conference at 1.30pm brought around a change of pace though as, like the BoE, Mario Draghi took a similar stance on interest rates. Hinting that rates could go down further in the future, traders reversed their sell orders on sterling and sold the euro. A far less dramatic move compared to earlier but sterling and the dollar did make some ground back but nowhere near as much as they’d lost.
Sterling remained low against most major currencies which aren’t influenced in some way by the euro but buying levels against the various dollars remained expensive, with the US dollar at its strongest for some weeks.
Today is a quiet day for UK data and there’s little EU figures coming out either. We’ve already seen French trade balance come in lower than forecast and have German factory orders out shortly. Swiss inflation data has come out better than expected, although too little effect. The key releases this afternoon are Canadian employment figures at 12.30pm and the all important non-farm payroll and other employment figures from the US. Expect some further movement between the 3 major currencies then as our regular readers should know by now, the dollar can easily affect sterling and the euro.
Keep in touch with the team here at Currency Index with any currency requirements you might have coming up. With yesterdays movements, it’s clear timing is key, so get in touch for some friendly guidance from one of our dedicated brokers to talk about your sending money abroad