Hold On QE Gives Short Term Boost To Pound

8 June, 2012

Simon Eastman

Yesterday was all about the Bank of England and the “Will they, Won’t they?” question over further quantitative easing. The markets were in mixed opinion as to whether we would see any further funds pumped in for asset purchase so trading on the Pound was cautious.

The jump in PMI had little effect in the morning even though it was better than expected as the announcement from the MPC, due at midday, loomed. As the announcement came that interest rates were held at 0.5% and no change in asset purchase came the Pound spiked across the board. A welcome jump against the Euro came which continued over the afternoons trade before topping out with a 0.6% gain, whilst against the Dollar it reached a weekly high.

The Pound, seen as a more risky currency in some respects was also buoyed as a surprise interest rate cut came from China’s central bank, announced at the same time as the Bank of England. This helped not only the Pound but equities and the riskier commodity currencies to make gains as investor risk appetite returned.

We have seen these gains reversed this morning somewhat as investors are still concerned over the worsening Eurozone debt crisis and its effect on the UK economy already struggling, as highlighted by a string of poor data releases recently. It is unlikely we will return to the highs sterling enjoyed against a wide range of currencies in the last month or so as expectations that the BoE will at some point increase the asset purchase scheme (QE) in order to help firm up the lagging economy and encourage growth. The problems in Europe will almost certainly damage our exports and so a weaker pound will make it easier for struggling European countries to afford to import our goods.

So buyers beware, if you have a requirement for sending money overseas, in particularly Euros, it might be worth considering the options available to you for fixing the exchange rates and protecting yourselves against any further drop in the Pounds value. Speak to one of the Currency Index team today to discuss the options available to you.

Today, PPI data from the UK is released at 9.30am followed by a raft of Canadian data including unemployment data, housing starts and trade data. In the US we also have trade balance for April and wholesale inventories figures.