The Bank of England have decided to keep interest rates at the record low 0.5 percent this morning with concerns rising over a deep slow down in the rest of the year.
Sterling was trading at the mid-market rate of 1.5395 against the US Dollar and 1.2110 against the Euro at 10.30 am this morning.
Pound Sterling – UK Markets
Sterling has been dropping against the Pound and the US Dollar so far this morning as the Bank of England have again decided to keep interest rates on hold at the record low 0.5 percent.
This follows the comments of Deputy Prime Minister Nick Clegg yesterday who spoke out to suggest the nation’s recovery will in all likelihood be ‘uneven’. This morning’s economic data news has also revealed that the U.K. trade deficit widened to 8.7 billion Pounds in July from 7.5 billion Pounds the previous month. Exports fell by 0.9 percent and imports rose by 3.1 percent.
Sterling has now dropped 3.1 percent over the past month against the US Dollar as speculation continues to mount that severe budget cuts are going to dampen growth in the rest of the year. George Osborne will be detailing 61 billion pounds worth of spending cuts on October 20th so economists are suggesting that the long term picture for Sterling may be steady deterioration.
US Dollar – US Markets
The US Dollar is gaining back ground on the Pound following a steep dip late yesterday.
US markets continue to experience negative news with the Federal Reserve’s Beige Book, which provides a snap shot of economic conditions by conducting surveys in twelve districts, suggesting the US economy continued to grow between July-August but with ‘widespread signs of a deceleration’.
Later today sees jobless claims and trade balance data which have both been forecast to show slight improvements but as has been the case with US data of may be unpredictable.
Euro – European Markets
The Euro has been experiencing volatile movements after one of the European Central Bank Executive Board members was reported as saying that some German savings banks that were not subject to the European stress tests need more capital. The Association of German banks also suggested that the nation’s ten largest lenders may need about 105 billion Euros in new capital.
Other data for Germany, the Eurozone’s largest economy, was also downbeat with reports this week showing German industrial production increased less than forecast in July and exports unexpectedly fell.
On a positive, Portugal’s bond auction was successful and may have helped to smooth over some investor fears about European banks. The Greek Government is hoping for a similar success in the future after the Finance Minister yesterday said that Greek government bonds are no longer ‘something to fear’. He spoke out to say the country is on track for meeting its budget cutting goals with the aim being to reduce the deficit to 8.1 percent of GDP this year and 7.6 percent in 2011.
With such mixed data, the currency may be set for more volatility.
Other Currencies – Highlights
The Australian Dollar has risen to a four month high against the US Dollar after a report showing that more jobs were added in August than expected with 30,900 new workers – this will up the pressure for an interest rate rise in the future.
For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000
Sterling Rises Sharply on Renewed Hopes of the UK Leaving With a Deal
Dollar Rises Modestly on FOMC Minutes
Sterling Rises on Hopes of EU Softening Tone on Backstop