Whilst the Pound strengthened yesterday following the Bank of England inflation report, and the Dollar also gained as trade balance and employment figures showed a marked improvement, the Euro has solidified its position as the currency under pressure. Yesterday’s Portuguese bond auction yielded disappointing results and debt in other nations such as Ireland is back under scrutiny. Tomorrow’s German and European GDP figures could be important.
Pound Sterling – UK Markets
The Pound has continued its surge over the past twenty four hours as yesterday’s interest rate report has severely diminished the threat of quantitative easing in the UK.
The report suggests that inflation is likely to remain above the bank’s target level of 2% for the near future, but predicts that it will dip below the target level within two years. The report says that the outlook for the UK economy is uncertain, although the recovery should continue, and is heavily dependent on developments in the global economy. Most importantly for currency movements, persistently higher UK inflation is perceived to reduce the likelihood of (imminent) quantitative easing and increase the probability that the Bank of England interest rate may be raised to reduce inflationary pressure within the economy.
The Pound made step-wise progress against the Dollar yesterday and in overnight trading. It closed at $1.60705.
The Pound strengthened against the Euro yesterday, closing at €1.1671, a gain of 0.5%.
US Dollar – US Markets
The Dollar has dropped against the Pound but had strengthened against the Euro throughout yesterday on the back of better than expected US jobs and trade data.
The first time jobless claims had fallen by 24,000 last week to a four month low. Although this helped push the Dollar up against the Euro it has fallen against Sterling since Wednesday following the UK inflation report.
Details are beginning to emerge about the Federal Reserve’s quantitative easing plans. It will start the purchase of $105 billion of government bonds later this week and the purchases are likely to extend into December. $30 billion Dollars of this first trance of spending will come from the Federal Reserve’s mortgage portfolio with the rest from the QE pool.
Euro – European Markets
The Euro has again drifted lower against Sterling and the Dollar as concerns about sovereign debt persist following the disappointing Portuguese bond auction yesterday.
The European Central Bank monthly report is released at 9pm this evening. This report can have a bearing on the performance of the Euro as it tackles the economic situation and risks in Europe and challenges that the ECB face.
This comes as French and German leaders are calling for investors to be more willing to bear some of the costs of the debt restructuring taking place in many European nations. The argument is that if public money is available for certain bailouts, investors must be willing to play their part in return. It is unlikely to carry much weight outside the court of public opinion.
Tomorrow morning could also be important to the Euro with GDP figures from both Germany and the European Monetary Union.
Other Currencies – Highlights
The Japanese Yen has fallen against Sterling, the Dollar and the Euro in trading this week.
This will provide a modicum of relief to Japanese exporters who have been suffering from the relatively high value of the currency. Japan remains bedevilled by deflation, high unemployment and low levels of consumer confidence.
The G20 meeting commences today where one of the issues on the agenda will be the problems surrounding actions taken by nation’s to devalue their currencies and the problems that this creates for the global economy.
Key Economic Events
G20 Meeting Commences
9pm European Central Bank Monthly Report
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