Tuesday November 3rd 2009, By Daniel Wright – Associate Director
Sterling Report – Pound makes losses ahead of interest rate decision on Thursday
Sterling lost ground against all major currencies yesterday as investors expressed their concerns that the Bank of England may introduce further quantitative easing measures at their interest rate decision due out at 12:00 on Thursday. This decision could be vital for anyone due to send money overseas or with any upcoming money exchange.
The mere mention of quantitative easing in the U.K over the past few months has generally led to Sterling weakness, as pumping yet even more money into the economy is seen as negative for the Pound.
"With the possibility of more quantitative easing looming, no one is willing to bet the ranch on this one," said Daragh Maher, senior currency strategist at Calyon in London.
It appears now that investors have now stepped back from investing in the perceived ‘risky’ Pound that led to the majority of the strength during last week and are eagerly awaiting announcements on Thursday.
"The blow to the foundation of risk appetite is really hurting sterling, along with concerns about the UK banking sector and the prospect of more QE from the BoE," said Ashraf Laidi, chief markets strategist at CMC Markets in London.
He added that sterling's inability to make a sustained break above the $1.67 level after two failed attempts in October and September would keep sterling weak against the U.S. currency.
The pattern over the past few months for the Pound has been taking two steps forward then dropping three steps back as I’m sure many of you are aware, so if you do have an upcoming currency requirement it may be prudent to take advantage of this rare spike seen last week before Sterling even has the chance to drop away again.
If you do not already have an account open here at FCD but do have an upcoming trading requirement, click here to open a trading facility in advance, so that when the time comes it’s one less factor on your mind, and you are prepared to secure a rate should there be any spikes in your favour in what is an extremely volatile market at present.
Sterling forecast – Around the globe
Expect an extremely volatile week for Sterling against the Dollar as we see a flurry of the most important releases for the month from both economies from Wednesday onwards. The Fed interest rate decision is first up followed by the previously mention BOE interest rate decision on Thursday and Non farm payrolls data on Friday lunchtime.
No major changes to rates are expected in the decisions however be aware that any economic policies mentioned may cause high volatility. The non farm payrolls have also bought large movements in the past, as the predicted and factored in figures can largely differ from the actual release leading to market corrections.
The Eurozone also release their interest rate decision on Thursday at 12:45, once again no major changes are expected however head of the ECB (European Central Bank) Jean Claude Trichet speaks afterwards and may give indications of future economic tactics.
Breaking news overnight – Australian interest rate decision
The Reserve Bank of Australia released their rate decision yesterday and increased rates for the second consecutive month by 0.25% to 3.50%, this has not bought major movements in the markets however just goes to show how far they are ahead of the U.K at present in terms of the state of their economy.
Breaking news this morning – Banks shake up revealed
Finally, Alistair Darling revealed the full extent of the banking shake up for Lloyds and RBS this morning amid concerns that the two bailed out banks would need to be scaled down to safeguard competition concerns. Early morning trading has seen Sterling weakness.
"The likely costs to the taxpayer and the risks on the impact on the public finances have been reduced," the Treasury said.
In short, if you are buying or selling foreign currency why not eliminate the gamble that your funds will cost more or achieve you a lot less than you bargained for and contact your personal account manager today on 0800 328 5884
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Have a great day and thanks for reading!
Daniel Wright
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