Sterling fightback

Sterling Fights Back but For How Long?

Thursday trading started off fairly flat following two days of sterling weakness across most major currencies. With no data releases in the UK there was little to look forward to for a boost.
Thursday is the day the Bank of England announced their available pot for the weekly funds auction, an auction open to any bank or financial institution where they can bid for funds supplied by the BoE to help them out in these troubled times, borrowing at the base rate of 5 percent. It was announced this amount had been increased from last weeks £11 billion to £13.7 billion.

The auction closed at 10am and resulted in bids equating to 4 times the amount of available funds. The increase in bids mainly due to the credit crunch keeping interbank lending rates high leaving banks reluctant to borrow off each other.

The pound found further strength following the announcement of plans for the BoE to allow banks to swap mortgage backed securities for government bonds. This was seen by the markets as the Bank of England finally doing something to stem the worry caused by the ever worsening credit crunch.

"It's a confidence booster that the BoE will help alleviate the credit crunch," said Henry Wilkes, senior Vice President of foreign exchange at Brown Brothers Harriman.
"A lot of observers have been criticising the BoE over not acting as proactively as the Fed, so a lot of people are seeing this as finally doing something about it and creating solutions."
Yesterday proved to be a good day to take advantage whatever the currency you required with the pound making significant gains across the board, particularly against the euro and dollar. We ended up at the high of the day by 1.13 percent against the euro and just short of 1 percent against the greenback. Worth taking advantage of for those that did and possibly a missed opportunity for those who did not. These spikes in the market of late have been short lived so if you have any upcoming requirements get in touch with your FCD account manager to discuss your options.

The markets still expect further interest rate cuts in the coming months with expectations for a cut as soon as May or if not then in June according to some analysts. This as seen of late may only add to the pounds weakness and we could see the rates of exchange continue its long running slide.

Figures on public sector borrowing released at 10am today will give further insight into the UK economic state. With the minutes of the MPC policy meeting earlier this month released next Wednesday it would be worth keeping in touch with your FCD account manager to avoid being caught out.

The dollar came under added pressure yesterday following a weak run of data releases. Philly Fed's manufacturing index of current business activity unexpectedly declined to -24.9 in April from -17.4 in March, against expectations for an improvement. Adding to the pressure, weak weekly initial jobless claims figures, which showed an increase of just 17,000. This pushed the pound close to a one percent increase against the dollar by the end of UK trading.