The Day Of The Central Bankers

6 July, 2012

Simon Eastman

Yesterday was a day lead by Central Banks around the world, with great anticipation the markets awaited news from the Bank of England at midday to see if they would indeed, as greatly speculated recently, increase the asset purchase program known as Quantitative Easing. Noon came and indeed they did, pumping another £50 Billion into the UK economy. Normally this would lead to sterling weakness but with much speculation already the markets had seemingly overpriced in this event and the pound took advantage gaining across the board.

More surprisingly was that at the same time in the Far East, China decreased their overnight lending rate by 25 basis points giving instant strength to those currencies affected by trade in that part of the world. The Aussie dollar went on the offensive, gaining all day against the pound by over a cent. Those looking to move money across to the other side of the world quickly saw their returns diminish. The US dollar also took favour from this making good gains against the pound.

With the markets having little time to digest these moves the European Central Bank made the surprise move to cut their interest rates by 25 basis points to their lowest levels ever, to 0.75 percent. The reaction was instant Euro weakness, a welcome sight for those sending money overseas to the Eurozone. The Euro lost a cent to the pound and similar against the US dollar, giving some great buying levels close to the best levels in 3 ½ years we saw a couple of months ago.

This morning levels open where they closed yesterday and we have a raft of data to bring the week to a close. UK PPI data comes out at 9.30am followed by German Industrial Production. Across the pond Canadian unemployment data and building permits are released around lunchtime along with Ivey Purchasing Managers Index later on.

The main event today though is the US Non Farm Payrolls, always a key release and potential big mover of the currency rates. With the familiar effect of the dollar on GBP/EUR rates we could be in for some volatile trading this afternoon and potential buying opportunities so be sure to keep in touch with your broker at Currency Index if you have a requirement coming up soon.