Friday 30th September 2011
Good morning. Sterling was at a 1 week high against the dollar yesterday, and was up very slightly against the euro. This was due to the Swiss National Bank saying they would look to increase its foreign exchange reserves of sterling assets next year, creating some support for the Pound. At 08:30am this morning rates are as follows:
• GBP/EUR 1.1512
• GBP/USD 1.5547
• GBP/AUD 1.5967
• GBP/NZD 2.0365
• GBP/CHF 1.4036
• GBP/CAD 1.6196
• GBP/ZAR 12.427
• GBP/JPY 119.16
• GBP/DKK 8.5662
• GBP/NOK 9.0841
• EUR/USD 1.3500
Sterling holding firm against USD and EUR, but gains likely to be limited
Despite the decent support we've seen for Sterling this week, we still think that any gains for the Pound are likely to be capped and limited, given concerns about a fragile UK economy and its vulnerability to any escalation of the euro zone debt crisis. Also, as we've been talking about all week, there are market expectations that the Bank of England will soon launch another round of quantitative easing. This would weaken the Pound and pull exchange rates down.
The BoE holds a monetary policy committee meeting next Thursday, and the closer we get to the decision and the more likely QE seems, exchange rates could start to fall. Economists in a Reuters poll forecast the bank will resume quantitative easing in November, but it also revealed there was a 40% chance it could start next week.
"Sterling still looks in a downtrend," said Richard Wiltshire, chief FX broker at ETX Capital. He said market players were inclined to sell on rallies, keeping sterling capped below $1.57 against the dollar.
BoE chief economist Spencer Dale said in a newspaper interview yesterday that a weakening of the global economy looked more persistent than first thought and more monetary stimulus may be needed if the situation worsened further. As comments like this increase the chance of QE, we expect pressure on Sterling.
Today the UK sees the GFK survey which measures economic confidence. We also have GDP figures for the UK which is the most notable UK release of the week. EU unemployment figures are also released. Stateside we see Inflation Data and income figures.
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