No surprises with yesterday’s interest rate decision from the US which came in on hold at 0.25 percent with the bond buying status maintained. However events have still dampened the Dollar, especially after Obama’s downbeat State of the Union Speech, and proposal for a spending freeze. The Pound meanwhile has recovered some ground from Tuesday’s crash but uncertainty still hangs over the UK economy following the disappointing GDP figures. With so much volatility, if you have another currency to transfer into Sterling, it is wise to speak with your broker to take advantage of any lasting weakness in the Pound from Tuesday.
Pound Sterling – UK Markets
The Pound has been making back ground following the steep drop bought on by the surprise contraction in GDP figures on Tuesday. Yesterday’s Bank of England minutes indicated that policymaker Martin Weale joined Andrew Sentence in voting for a 0.25 percent interest rate rise which will have aided Sterling slightly.
However an interest rate rise was not ear marked until August in the MPC minutes, which will serve to dampen some of the recent hype for an earlier increase which has pushed Sterling upwards. It is also significant that these were the minutes from two weeks ago coming before the shockingly low GDP figures – so the impact of GDP has not yet been dissected by the Bank of England but will come in the next meeting and set of minutes in February.
Weakness in the property sector has reared its head once more with a Hometrack housing report for December indicating a drop in house prices by 0.5 percent in December – a drop for the seventh month in a row.
US Dollar – US Markets
The Dollar is lower against the Euro and the Pound following the FOMC’s decision to keep interest rates on hold and maintain the bond buying programme coupled with the focus on cuts in Obama’s State of Union speech. The vote was unanimous to keep interest rates unchanged and maintain the additional £600 billion bond buying programme to support the economy. This was expected by markets, but the ongoing cautious stance will not help the Dollar, especially coming right after Obama’s speech focusing on economic problems and proposing a spending freeze.
In data out later today, US weekly jobless claims are expected to have increased to 409,000 and are therefore unlikely to help the Dollar if the amount of claims has increased.
Euro – European Markets
The Euro continued to push up against the Dollar on Wednesday as talk still circulates about whether the European Central Bank will increase interest rates to fight inflation.
Relief that Ireland managed to scrape through the vote on its finance bill will also have helped, as will Trichet’s comments that the European Central Bank will take whatever steps are needed to control rising inflation and provide sufficient bailout funds.
European industrial confidence has grown well above forecasts this morning and there has been some upwards movement against the Pound since 9am although whether this will last and how significant it may be remains to be seen throughout the day.
Other Currencies – Highlights
The Japanese Yen has been volatile as positive growth for export figures in December was swiftly followed by a downgrading of the nation’s credit rating by Standard and Poor’s, taking the currency lower against the Dollar.
The first piece of news, in the form of growing export figures, up 13 percent on a year earlier, helped to ease some of the fears about the effect of the rising Yen on the export-led economy. The downgrading of the credit rating however, for the first time in nine years, has put the 11 trillion debt burden back in the spotlight and worked to instantly weaken the Yen.
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Pound falls further
British Pound Suffers Losses Ahead of Tuesday's Critical Vote