Thursday 14th July 2011
Good morning. Sterling has shot up against the weak US Dollar, after the Fed chairman said more monetary policy easing may be necessary. This has significantly weakened the USD, and rates have shot up from $1.58 a few days ago to $1.61. At 08:30am this morning rates are as follows:
• GBP/EUR 1.1352
• GBP/USD 1.6135
• GBP/AUD 1.5017
• GBP/NZD 1.9064
• GBP/CAD 1.5474
• GBP/ZAR 11.017
• GBP/JPY 127.45
• GBP/DKK 8.4644
• GBP/NOK 8.8969
• EUR/USD 1.4207
Sterling gains against US Dollar
Sterling is a full 3 cents higher vs the US Dollar than the 5 month low we saw last week. Ben Bernanke's comments hinting at further Quantitative Easing has significantly weakened the US Dollar, helping GBP/USD rates recover well.
Pound still weak against Euro
However despite gains against the Dollar, Sterling was weaker against the euro after data showing a sharp rise in the number of Britons claiming unemployment benefit added to concerns a faltering UK economy will ensure a prolonged period of record low interest rates.
As I mentioned in yesterdays post, the Euro is at it's weakest in years due to all the debt problems in several EU countries, however gains in GBP/EUR are limited because of the state of the UK economy, and the fact the two economies are inexorably linked.
UK economic figures still poor
The UK claimant count saw its biggest jump in two years last month, taking the total to the highest since March 2010. This added to the growing view that the UK outlook is worsening, which has pushed back expectations for interest rates to rise until well into next year and raised the prospect of the Bank of England opting for more monetary easing.
The weaker growth outlook for the UK was highlighted last week by the UK's National Institute of Economic and Social Research, a leading think tank, which estimated economic growth slowed to just 0.1 percent in the second quarter of this year. For these reasons we expect Sterling to remain on the back foot, and further drops in exchange rates could well be likely.
Today's Data that may affect rates
No UK data of note. EU inflation figures combined with a report from the ECB though could still affect GBP/EUR rates. There is also a speech from the ECB president, so we will be watching this closely for any coded comments that signal future fiscal policy. From the USA we have retail sales, inflation data and jobless claims
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Labels: Ben Bernanke, FED, Quantitative Easing