Sterling Sharply Plummets On Bank of England Outlook

Sterling steeply dropped to the 1.17 level against the Euro last night following the worst public finance debt figures ever for the month of August on record – the currency is tumbling yet further this morning following the Bank of England minutes which have revealed an outlook for slow and patchy growth. Sterling was trading at the mid-market rate of 1.5641 against the US Dollar and 1.1758 against the Euro at 10am this morning.

Pound Sterling – UK Markets

The Sterling situation this morning has been exasperated by the release of the Bank of England minutes from September’s rate meeting. Although Andrew Sentence was again alone in voting for an interest rate increase, the minutes suggest that for several policy members, there is now an increased ‘likelihood’ that ‘further action’ will be needed to stimulate the economy and keep inflation on track in the medium term. This follows the committee’s sentiment that it is now likely that the UK recovery will ‘not be smooth and that growth in some quarters would be relatively slow’. The minutes have knocked Sterling by highlighting various weaknesses in the UK economy. These include concerns of policy members over the effect of the inconsistent recoveries in the Eurozone and US economies on the UK; the reliance of the manufacturing sector recovery on a weak Pound; and that unemployment may now be set to rise as firms have to get rid of parts of the workforce that they had maintained on anticipation of the recovery taking place at a quicker pace than has been seen. It’s a gloomy day for UK markets. In addition to today’s minutes, Vince Cable the Business Secretary is launching an attack on the ‘murky’ bonus culture of City traders and discussing their role in the crisis at the Liberal Democrat conference today.

US Dollar – US Markets

The US Dollar fell to its lowest level in six weeks against the Euro after the Federal Reserve seemed more likely to increase stimulus for the economy following their meeting yesterday. US policy makers said that they ‘will provide additional accommodation if needed’ to spur growth after focus was placed on the benign level of inflation and poor economic conditions. The successful European bond auctions have also undermined the Dollar and the currency found little support in better than expected data on the US housing market. News in the housing sector today is expected to be negative with a 0.2 percent drop in prices forecast by analysts.

Euro – European Markets

The Euro was boosted yesterday by successful bond auctions and is widely benefiting from Sterling and Dollar weakness. Ireland sold 1.5 billion Euros worth of debt yesterday and Spain sold 7 billion Euros of 12 and 18 month bills, which was the maximum target. Should Portugal’s sale today go as well then the Euro may gain even more support in the wake of the negative data coming from the UK and US. Data this morning that has showed a drop in industrial orders is unlikely to have a significant effect given what is going on more broadly in the markets.

Other Currencies – Highlights

The New Zealand Dollar has risen in advance of a report tomorrow expected to show that economic growth accelerated last quarter. The Swiss Franc has deteriorated as the demand for the safe currency has lessened following Europe’s debt auctions. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000