Merkel comments save Sterling in aftermath of QE

19 July, 2012

On Wednesday, Sterling seemed to have a surprising level of good luck. Most analysts would have expected to see the value of the pound drop by a somewhat significant amount after The Bank Of England Monetary Policy Committee (MPC) revealed it had voted 7-2 in favour of increasing its quantitative easing (QE) programme by £50bn yesterday. However, the UK economy was helped significantly when it was announced that unemployment 65,000 to 2.58 million in the three months to May, bringing the national unemployment rate down to 8.1% from 8.3%. Despite us technically being in recession, the value of sterling continues to hold its own, and positive news such as this will only help the economy on the road to recovery.

Real signs of sterling’s comparative strength were shown yesterday, when the rates for seding Euro payments reached a 3 1/2 year high. Despite the Euro making some short-term gains on sterling after the BoE minutes yesterday, these gains were erased when German chancellor Angela Merkal stated that – “We have not yet shaped the European project so that we can be sure that everything will turn out well”. While it may seem like a minor comment to make, considering that Germany are effectively keeping the Euro running almost single handed, this somewhat negative statement appears to have worried investors, causing the value of the European currency to dip significantly. Any further hopes of a recovery for the day were crushed by the announcement that Spanish banks had 155.84bn euros of loans on their books in May that are at risk of not being repaid. Weakness in the Spanish banks only adds to Spain’s problems, and is beginning to fuel fears that they may end up in a similar situation to Greece. The Euro’s problems aren’t helped by the fact that Sicily is close to financial default, with the Italian Prime Minister calling for the governor to resign. Whilst comparatively small compared to the rest of the Eurozone problems, this shows just how far down the chain the problems reach.

Sterling seems to be holding its breath against the US Dollar for the time being, with no significant swings either way. Anyone looking to transfer sterling to dollars in the near future should note that investors appear to be unsure about the possibility of the US federal reserve introducing further quantitative easing. Analysts predict that it may come within the next few months, but Federal Reserve Chairman Ben Bernanke seems to be unwilling to give a clear answer concerning it.

Considering the rates we’re currently seeing, anyone looking to transfer sterling to euros should definitely consider giving their account manager at Currency Index a call, to see how we can assist you in achieving the best rates since 2008.