Pound Gaining As Bank of England Take No More Stimulus

The Bank of England has chosen to keep interest rates at 0.5 percent and introduce no further stimulus measures at their policy meeting this morning. Following the recent concerns over whether new stimulus would be taken, the Pound has begun to climb on the Euro following the recent heavy losses. Sterling was trading at the mid-market rate of 1.1442 against the Euro and 1.6013 against the US Dollar at 12.30 pm today.

Pound Sterling – UK Markets

The Bank of England decision this morning to keep interest rates at 0.5 percent was largely expected by markets. The less certain announcement that no further stimulus measures or asset purchases are to be made may help to soothe the recent hype over the need for quantative easing as recently stated by Adam Posen, Bank of England policy member. In the first few minutes following the decision, the Pound began to rise against the Euro, as investors took new positions. Whether this will signal a re-adjustment in the current state of play long-term and change the recent slide of the Pound against the Euro will remain to be seen throughout the day. Yesterday, the Institute of Directors added its voice to the demands for further quantitative easing measures to help speed up growth so the issue still remains even though action has not been taken this time. The minutes from today’s Bank of England meeting will be published later this month will be read with interest as it is only in the minutes that markets discover how the split of the vote on policy was, and whether stimulus plans were discussed for the future. It is expected that these minutes may reveal a three-way split on policy which would not bode well for Sterling. Prior to the Bank of England decision, the Pound was suffering following other economic data releases. The worst of these was today’s Halifax housing report which revealed house prices fell by 3.6 percent in September, the largest drop on record.

US Dollar – US Markets

The US Dollar has been falling against the Pound today and is still at around the weakest levels against the Euro in eight months. Despite Japan focusing on depreciating the Yen against the Dollar, the US currency is also at around a fifteen year low against the Yen. The currency is still suffering from mounting speculation that the Federal Reserve are becoming increasingly likely to step up stimulus measures and asset purchases to support the slowing economy. This was reinforced by a poor set of jobs data as the ADP report on employment in the private sector for last month, showed a fall in employment by 39,000 not meeting economist’s expectations of a rise of 20,000. This does not bode well for other employment related data out of the US for the remainder of this week including jobless claims data later today and non farm payrolls tomorrow.

Euro – European Markets

The Euro has shown remarkable resilience lately shaking off significant news on various Eurozone economies such as the scale of Ireland’s costs to bail out the Anglo Irish Bank. The currency also shrugged off the fact that Ireland’s rating was downgraded to A from AA- yesterday by Fitch’s with the Euro still advancing on other major currencies throughout Wednesday. The currency has been widely benefiting from the uncertainty hanging over the UK and the US and whether these other nations need to introduce stimulus measures. There is therefore the possibility that this morning’s Bank of England meeting could begin to adjust the general sentiment, with it being confirmed that the UK is holding interest rates and asset holdings at current levels. In the first few minutes following the rate decision, the Pound began to gain back on the Euro. The European Central Bank is widely expected to leave interest rates unchanged at 1 percent today.

Other Currencies – Highlights

The Australian Dollar has surged and looks set to achieve possible parity at highs against the US Dollar. This follows a significant improvement in Australian employment with the latest figures revealing a rise of 50,000 coming in at twice the rate predicted by the markets. This makes an interest rate rise next month very likely which would also boost the currency. The so-called ‘currency war’ has become part of continued debate within the press as nations such as Japan and Brazil have taken measures to try and weaken their respective currencies in a bid to attempt to protect their export-led recoveries. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000