Investors Await G7 and International Monetary Fund Meetings This Weekend

Yesterday’s decisions by both the Bank of England and the European Central Bank to keep interest rates on hold were widely expected. Whilst the Bank of England minutes due later this month will give a more thorough indication of what the discussion on monetary stimulus was, Trichet’s comments following the ECB meeting that stimulus measures may soon begin to unwind in the Eurozone have only reinforced the current state of play. Although the fact that no further stimulus will be taken by the Bank of England initially gave the Pound a short boost yesterday, it is now back down to similar recent levels. Sterling was trading at the mid-market rate of 1.1403 against the Euro and 1.5860 against the US Dollar at 10.00am today.

Pound Sterling – UK Markets

Yesterday’s decision by the Bank of England against introducing quantitative easing has not given the Pound any lasting support. Although Sterling was initially boosted after the news and began climbing on the Euro, it has since dropped back. The UK currency wasn’t helped by the sheer drop in house prices after the Halifax housing reported recorded a tumble of prices by 3.6 percent in September. This has fuelled fears that a lengthy decline in the property market will continue and drag the rest of the economy down. The release of Producer Price Index input data this morning which measures the rate of inflation experienced by UK manufacturers when buying goods and services has risen by 0.7 percent in September, which may help the Pound gain.

US Dollar – US Markets

The US Dollar has had a turbulent twenty four hours but overall has had some minor successes against the Pound and the Euro. The minor gains following the Dollar’s drop to an eight month low against the Euro have been attributed by some to investors squaring positions ahead of the US nonfarm payrolls report later on today. This follows weekly jobless figures showing a slight improvement coming in at 445,000 rather than the expected 455,000. Today’s figures will be significant as they are the last employment related figures to come out prior to the next Federal Reserve meeting at which further monetary policy will be at the top of the discussion agenda.

Euro – European Markets

Interest rates were also kept on hold in Europe yesterday as well as the UK although this was broadly expected by markets. Although the Euro has lost some slight ground to the US Dollar, there is a chance that investors will reduce holdings of Euros prior to this weekend’s International Monetary Fund meeting. Comments from European Central Bank president Jean-Claude Trichet suggesting that the Central Bank may be ready to start unwinding stimulus measures builds on all the reasons why investors have recently been attracted to the Euro as opposed to the Pound or Dollar and his press conference resulted in some instant gains. With both the G7 and International Monetary Fund meetings this weekend, with the G7 in particular likely to focus on Dollar weakness, investors will be looking at what emerges from the press conferences of these.

Other Currencies – Highlights

The Australian Dollar is finding its way to the strongest levels in twenty years following its recent very strong jobs data. The Head of the International Monetary Fund, Dominique Strauss-Kahn, has been the next to speak out about the recent focus on ‘global currency wars’ with several nations intervening to weaken their currencies and maintain the competitive edge of their export markets. Strauss-Kahn has claimed that this lack of co-operation poses ‘a real threat’ to economic recovery. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000