Sterling hit the day's low against the Euro after Bank of England minutes showed one policymaker had voted for more quantitative easing and data showed a rise in public borrowing.
Pound Sterling – UK Markets
In a leaked spending review George Osborne is to announce that almost 500,000 public sector jobs are to be cut by 2014 as part of an attempt to make circa £83billion of spending cuts.
Looking at the wider economy Sterling will come under continued pressure, consumer confidence figures were weak last week and mortgage lending for September was down 1%. It may take a while for the markets to decide whether the decisive spending cuts are a positive move to future recovery or a step too far.
The Bank of England governor, Mervyn King, has forecast a sober decade as Britain slowly recovers from the financial crisis.
Speaking of "savings, orderly budgets, and equitable re-balancing", he noted that the “hangover” from the global financial crisis would be long lasting. He also said that the UK money supply was barely growing at all, thereby raising hopes in some quarters that the Bank would engage in a further round of quantitative easing soon.
US Dollar – US Markets
The US Dollar has a better day yesterday against the other major currencies. It closed ¥0.3 higher against the Japanese currency at ¥81.6509. However, in early European trading, the Dollar has reverted to form and is currently trading at ¥81.29 (at 07:30 GMT), reversing all of yesterday’s gains against the Yen.
Bank of America has announced a $7.3 billion loss for Q3 after having written down anticipated credit card and debit card loses. If the $10 billion provision is set aside for a moment, then the performance of the bank beat analysts’ expectations. Nevertheless, the figures were blamed for falls on the US stock market yesterday.
Euro – European Markets
In early European trading, the Euro is beginning to claw back some of this week’s losses against both Sterling and the US Dollar. The Pound was trading at €1.1396 and a Euro was purchasing $1.3793 at 07:36 GMT.
The European Union’s finance ministers have come to an agreement which will usher in tighter regulations for hedge funds and private equity firms. One component of the new rules will tie 40 to 60% of the bonuses that traders make from these funds to their longer term performance.
Other Currencies – Highlights
In a reversal of recent statements that have claimed that the Japanese economy is “picking up”, the most recent monthly cabinet statement has acknowledged the fact that it is now at a standstill. The statement, the most negative in two years, declares that the economy is “pausing” and was expected to remain weak for some months to come. It acknowledged widespread concerns that a high Yen was beginning to hurt the exports which are central to the country’s economic fortunes. Exports to Asia have slowed recently and the government has indicated that it is possible that Japan will return to recession if matters don’t improve soon.
The Bank of China has surprised analysts by raising its interest rates for the first time since the onset of the global financial crisis. The move was designed to dampen the property market, which many fear is a bubble ready to burst, and to curb inflation. The one-year lending rate has been raised from 5.31 to 5.6% and the one-year deposit rate has been increased by 0.25% to 2.5%.
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