Sterling hit a 10-month high against the US Dollar, taking advantage of the Dollar’s sell off in markets across the globe. The US currency suffered losses because the Fed’s statement, after its July meeting, didn’t provide a more specific time frame over the unwinding of its massive balance sheet, and seemed to acknowledge that the decline in inflation is not a temporary situation.

The head of the Financial Conduct Authority (FCA), Andrew Bailey, said that the Libor (London Interbank Offered Rate) benchmark will be phased out by the end of 2021. Bailey noted that the rate isn’t sustainable and will seek to replace it with a more reliable system. In 2012, banks and traders had been caught manipulating the benchmark, leading to the conviction of several bankers and a total of £8bn paid in fines.

Pound Sterling – UK Markets

Today, Sterling rallied against the US Dollar, with the exchange rate set at $1.31, hitting a 10-month high against the US currency. The British Pound also strengthened against the Euro, with the exchange rate set just above the €1.12 mark.

Prime Minister Theresa May is on holiday in Italy, but her ministers have scrambled to search for making new trade deals with countries across the globe or to reassure British citizens that Brexit won’t affect their lives too much. Home Secretary, Amber Rudd, announced that the flow of EU nationals, coming to work in Britain, will continue for an “implementation period”, after Brexit. The original government plan was to impose strict and tough immigration rules from March 2019. Rudd assured employers that they will face no “cliff edge” post-Brexit. Further details weren’t provided.

Businessmen in Britain are worried of a potential shortage in skilled workers. The British Chambers of Commerce (BCC) welcomed Rudd’s comments, noting that “EU nationals and their British employers have been given some much-needed reassurance, by signalling that any changes in immigration rules will take place in an orderly fashion over time.”

US Dollar – US Markets

The US Dollar edged up against the Euro, with the exchange rate set at €0.85. Earlier in the day, the US Dollar Index (DXY), which is an index that measures the value of the Dollar against a basket of currencies, fell to a 13-month low.

The US currency suffered losses yesterday when the FOMC post-meeting statement was released. The Fed kept its interest rates unchanged and said that it will start shrinking its balance sheet “relatively soon.” Investors and traders wanted to listen to something more specific on this subject, but now assume that there will be a new announcement on September.

However, the real surprise came from the front of inflation. The statement indicated that the Fed has changed the way it thinks about the declining inflation in the US. The Fed’s rhetoric showed that there is a rising concern that the inflation’s weakening will be more long-lasting than previously thought. The Fed’s Chair, Janet Yellen, had described the decline as “temporary” some weeks ago. The change in rhetoric ignited a US Dollar sell-off in global markets.

Euro – European Markets

The Euro dropped against the US Dollar, with the exchange rate set at $1.17. The single market currency had hit earlier a 2-year high against the US currency, taking advantage of the US Dollar’s fall after the publishing of the Fed’s statement.

After yesterday’s positive retail results from Spain, more good news came from the Iberian country today, regarding unemployment. For the first time since the beginning of the financial crisis in the Eurozone, the number of unemployed Spaniards dropped below four million, according to a National Statistics Institute (INE) survey. The unemployment rate in the second quarter of the year came at 17.2%.

An ING report says that “the gains in the Spanish labour market epitomise the impressive Spanish recovery, as the unemployment rate decreased from 20% in the second quarter of 2016 to 17.2% in the second quarter of this year.” According to ING analysts, the target of an unemployment rate of 12% by 2020, set by the Spanish government, “might not be a fantasy anymore, looking at the current trajectory.”

Other Currencies – Highlights

The Pound remained stable against the Australian Dollar, trading at 1.63 AUD. The Aussie also managed to hit a 2-year high against the US Dollar. Economists at Westpac said in a report that export prices for goods fell in the second quarter, meeting their expectations, and import prices inched lower than anticipated. The report says that the national income was boosted by the rebound in commodity prices, during 2016 and early 2017. Another Westpac report published yesterday says that the Reserve Bank of Australia (RBA) is likely to keep the rates on hold in its upcoming August meeting.

Sterling retained its value against the New Zealand Dollar, trading at 1.74 NZD. The Kiwi also strengthened against the US Dollar, hitting 26-month high. The finance minister, Steven Joyce, presented the results of a research regarding the contribution of the design sector in New Zealand’s economy. The research showed that only in the last year, the design sector contributed 4.2% to the country’s GDP. Professors noted that if the thriving design sector was treated as an individual industry, its contribution to the GDP would be larger than agriculture’s and on par with retail.