Tuesday 24th January 2012
Good morning. Yesterday Sterling fell against the Euro by around 0.7%, pushing rates down to the mid 1.19's. Against the US Dollar, the Pound rose by around 0.5%, as the Dollar weakened on predictions it's interest rates will stay at record lows for some time to come. The below chart illustrates how exchange rates fared throughout trading yesterday:
~Currency Movements on Monday 23rd January~
Pound rises vs US Dollar
As you can see, rates steadily rose to buy the Dollar yesterday, although many investors were cautious about pushing the pound up further on growing concerns the Bank of England will have to inject further cash into the fragile UK economy. Expectations that the U.S. Federal Reserve will keep interest rates low for some years to come helped to weaken the US Dollar and made it cheaper to purchase.
Sterling falls against Euro
The Pound did not fare as well against the single currency. The Eurozone crisis has not escalated any further since last week, and the lack of any further bad news has taken the focus off the Euro, helping it to recover some strength. As a result exchange rates have fallen away from the 18 month high we recently saw.
Poor UK GDP and possible Quantitative Easing hurts Sterling
This week we will see UK GDP figures, to show the economy contracted, a factor that is likely to undermine sterling in the short to medium term. Bank of England Governor Mervyn King is also due to speak this week while the minutes from the most recent BoE Monetary Policy Committee meeting on Wednesday are all likely to reinforce expectations for further asset purchases.
It's now widely predicted that the BoE will pump further money into the economy in February, unless data released in the meantime suggests the economy is growing, which is unlikely. For these reasons it could well be that the Pound continues to drop against the Euro, while any resolution to the EU debt crisis could cause the USD to weaken, pushing rates back towards the $1.60 levels.
Today's Data
Today is a little busier, with figures showing the latest UK Public Sector borrowing. In the Eurozone there are some inflation measures, and data showing Industrial New Orders. Across the pond we will see US Manufacturing data, and Canada releases Retail Sales which show how confident consumers are about the economy.
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