The horizon is still looking pretty sparse in terms of any potential news that could bring some respite to the Pound.
Last week saw the double blow of the Bank of England minutes and details of budget cuts which coincided on Wednesday to push the Pound down to the lower 1.12s against the Euro by Thursday. The Bank of England minutes revealed a split in voting on both interest rates and quantitative easing measures – this has clearly knocked down further the confidence of market investors regarding the UK recovery. The increased likelihood of quantitative easing is the one dominant factor pulling down the Pound. What scraps of positive economic news there are coming out in the UK are failing to really lift the currency – this is also because Sterling is sat in the crossfire of movement between the Euro and Dollar.
It is also the threat of quantitative easing in the US that is maintaining the state of play in the Dollar, Euro and Pound relationship. Typically speaking, the Euro strengthens in times of Dollar weakness and the Dollar has remained weak now for several months as the economy continues to falter and additional stimulus becomes ever more likely. Therefore the Pound is still relatively strong against the Dollar but continuing to struggle against the Euro.
The housing market is always seen as a key indicator of UK economic health and recent news has not been good. Last week the Council of Mortgage Lenders reported that lending in September was at its lowest level since September 2000 and the Bank of England minutes confirmed dwindling demand for homes and loans.
And what of the story of the moment, the world ‘currency war’ ready to erupt? A G 20 meeting has resulted in the agreement of global finance ministers to not intervene to create a competitive devaluation of their own currencies (in order to protect their exports). This however, was the agreement already in place with some nations breaking this rule so whether this will be honoured remains to be seen.
Are there any predictions in terms of exchange rate movements this week? One of the most significant events is the UK third quarter GDP figures on Tuesday. Predictions are for quarter on quarter growth of 0.4 percent – this is very significant data so whether or not this is achieved may have an impact and cause market movement.
Sterling Rises on Hopes of EU Softening Tone on Backstop