Pound down vs Euro ahead of BoE minutes

Wednesday 20th July 2011
Good morning. Sterling rose against a weaker US Dollar yesterday, but fell against the Euro ahead of today's BoE minutes which could hurt the Pound further. Also buried in the news under the hacking scandal was the fact the IMF have warned on the global economy. Despite the BBC leaping onto the scandal with glee, giving it wall to wall coverage to the detriment of other news stories, markets took note of the IMF's warning. We'll look at all this in a moment after the usual rate snapshot as at 08:30am this morning:

• GBP/EUR 1.1345
• GBP/USD 1.6076
• GBP/AUD 1.4971
• GBP/NZD 1.8786
• GBP/CAD 1.5257
• GBP/ZAR 11.098
• GBP/JPY 126.80
• GBP/DKK 8.4573
• GBP/NOK 8.8700
• EUR/USD 1.4166

Sterling up against US Dollar

A recovery in equities yesterday helped Sterling rise against the US Dollar, as this created sovereign demand for the Pound. This was also helped by a rebound in UK banking stocks, however gains are still limited due to the UK's exposure to the EU debt crisis. Sterling is particularly vunerable against safe haven currencies like the USD and CHF, due to the concerns over the banking sector and our close links with the EU.

Pound down vs the Euro

Despite EU leaders struggling to reach an agreement on the debt crisis, the Pound fell against the Euro due to the interest rate differentials. The EU have raised interest rates twice this year to 1.5%, while in the UK our rates remain low at 0.5%. The better return on offer for Euros mean Sterling is struggling against the single currency, despite all the problems with EU debt.

BoE Minutes today - Sterling to fall against Euro?

Minutes of the Bank of England's July meeting are expected to add to the view that interest rates will stay chained at a record low 0.5%, and this could hurt the Pound today. Short-term interest rate markets do not price in another UK rate rise until late 2012 and concerns are growing that policymakers may edge towards considering further quantitative easing.

"At the moment there are few reasons to buy the pound apart from medium-term valuation concerns, and the many reasons to sell the pound still exist: low yield, the full effects of austerity yet to be felt and non-existent consumer activity," Commerzbank analysts said in a note.

If they mention further Quantitative Easing, expect Sterling to fall against other currencies. If however the minutes suggest that they are unwilling to pursue further QE, then we may see GBP/EUR rise back towards the €1.15 we saw recently.

Today's Data

Today we see the minutes to the recent BoE decision to hold interest rates. Any talk of Quantitative easing in the notes may cause Sterling to fall. Germany has some inflation numbers today, and the EU releases consumer confidence measures, which are unlikely to be good in light of the debt problems.

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Pound falls again vs Euro on Moodys downgrade warning

8th June 2011
Good morning. Sterling has continued to fall vs the Euro on UK data that shows growth is very slow, adding to the view that softness in the economy will keep UK interest rates on hold for the foreseeable future. Also this morning Moody's has warned the UK risks having its credit rating downgraded, pushing the Pound lower. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1146


• GBP/USD 1.6369


• GBP/AUD 1.5345


• GBP/NZD 2.0043


• GBP/CAD 1.6001


• GBP/CHF 1.3676


• GBP/ZAR 10.989


• GBP/JPY 130.76


• GBP/DKK 8.3103


• GBP/NOK 8.7555


• EUR/USD 1.4680

Moody's warns on UK Credit Rating

Sterling has fallen to a new one month low versus the euro and slid to a session low against the dollar this morning, on a media report of a Moody's warning that the UK could lose its AAA rating. The report quoted the rating agency as saying the UK could lose its top-notch rating if growth remained weak and the government failed to meet its fiscal consolidation targets.

It should be noted however that this was simply mentioned in a media interview, and is not an official release by Moodys. The markets however will still take note and this is why the Pound has fallen against the Euro today.

This is in addition to the IMF earlier in the week warning on UK growth. The news, combined with poor UK data and the fact interest rates are likely to remain on hold for the foreseeable future, has pushed Sterling lower against most currencies.

Today's Data

Germany releases a raft of data today including Gross Domestic Product, Trade Balance figures and Industrial Production. There are also GDP figures released for the EU as a whole. These GDP releases are quite important, and if good they will support the case for an interest rate hike in the EU and push GBP/EUR rates down. There is also an interest rate decision from New Zealand today.

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IMF assesment pushes GBP/EUR to 1 month low

7th June 2011
Good morning. Sterling fell again vs the Euro yesterday, hitting a new 1 month low. It was due to the IMF giving a muted reaction to UK growth, stating further Quantitative Easing may be required. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1202


• GBP/USD 1.6400


• GBP/AUD 1.5330


• GBP/NZD 2.0014


• GBP/CAD 1.6013


• GBP/ZAR 11.058


• GBP/JPY 131.58


• GBP/CHF 1.3676


• GBP/NOK 8.7774


• GBP/DKK 8.3526


• EUR/USD 1.4634

IMF annual assessment weakens Sterling

The IMF's annual economic assessment said the UK economic recovery was broadly on track but more quantitative easing may be required if growth continues to be weak.

The news weakened Sterling and pushed exchange rates lower. This combined with expectations the European Central Bank will flag an interest rate hike at its meeting on Thursday, helped the euro shrug off lingering worries over Greek debt and caused Strength in the single currency.

The combined effect was the GBP/EUR rate dropping into the €1.11's which is now the lowest in over a month, and not far from a 1 year low.

Interest Rates

This week both the UK and EU announce interest rate changes. It's expected both zones will leave rates on hold, however it's expected the EU will raise rates at least twice this year, while the UK is not expected to raise rates until 2012. This is the reason that GBP/EUR rates are low.

Today's Data

There is no data of note from the EU or UK today. Australia had an interest rate decision where rates were left on hold, and there are some inflation figures from Switzerland. Other than that, measures of economic optimism are released from the USA.

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