Pound to Euro, US Dollar exchange rate: The Pound fell by over 0.6 cents against the Euro

The Pound fell by over 0.6 cents against the Euro yesterday falling to a fresh 2-month low of 1.2443 in response to the Federal Reserve's decision to initiate a third round of quantitative easing measures. The Pound fell by over 0.6 cents against the Euro yesterday falling to a fresh 2-month low of 1.2443 in response to the Federal Reserve’s decision to initiate a third round of quantitative easing measures.

Headlines

Fed hold 0.25% interest rate – but implement QE3.
Stocks rally – risk appetite improves.
Friday 14th – still set to be unlucky for the US Dollar.
High-risk, high-yield currencies gain – safe havens fall.

Sterling

With an economic docket resembling the reduced section in a supermarket past 8pm – empty – Sterling sentiment was very much dictated by Fed stimulus hopes yesterday, and then subsequently by the Federal Reserve’s decision to embark on another round of quantitative easing.

The US economy stands at the crux of the global economy which means that any efforts to bolster the financial system in the United States will simultaneously benefit markets worldwide. During times of economic optimism investors tend to place their funds into risky currencies in order to benefit from their profitable interest rates.

In this instance the risk-boosting US monetary stimulus caused the Pound to appreciate against the US Dollar, but decline against the Euro, New Zealand Dollar, Australian Dollar, and Canadian Dollar.

Euro

The Pound fell by over 0.6 cents against the Euro yesterday falling to a fresh 2-month low of 1.2443 in response to the Federal Reserve’s decision to initiate a third round of quantitative easing measures.

In the Eurozone, disaster was averted as Dutch Prime Minister, Mark Rutte, and his Conservative-Liberal VVD party won the general election. VVD are a pro-European party, and their victory extinguished fears regarding Holland’s status inside the currency union.

However in some worrying news for the 17-nation bloc, the International Monetary Fund stated that Greece will need a third bailout package and that the country has only met 22% of its 2011 targets.

The Euro was hardly affected by either the Dutch election or the IMF’s statement, as tunnel-visioned traders focussed, almost entirely, on the outcome from the Fed’s press conference.

US Dollar

The Federal Reserve announced an aggressive stimulus programme yesterday, pledging to buy $40 billion of mortgage-backed securities per month until employment picks-up substantially. Fed Chairman Ben Bernanke did not give a specific target, rather he declared that the Central Bank are looking for “ongoing, sustained improvement in the labour market.” Bernanke’s comments suggest that the Fed are truly committed to propping-up the US, the world’s largest, economy, which sent stocks soaring and the SP 500 reached its highest level for nearly 5 years.

Bernanke: “If the outlook for the labour market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”

Although the terms and conditions are implicit, the message to markets is rather explicit; essentially the Central Bank have pledged their undying support to the US economy. The US Dollar is a safe haven currency, which means that it usually loses out to higher-yielding currencies during times of market buoyancy. The ‘Greenback’ is also negatively impacted when the Fed embarks on non-standard monetary procedures due to the inflationary nature of printing electronic money.

Subsequently the US Dollar has depreciated against the majority of its rivals including a fall to a fresh 4-month low against the Pound. The Pound to US Dollar exchange rate improved by half a cent on the news, spiking at 1.6175.

Canadian Dollar

Sterling slid by around 0.9 cents against the Canadian Dollar yesterday in response to the Federal Reserve’s decision to return to its monetary easing cycle. The new programme, which aims to push mortgage rates lower and improve the labour market in the US, was interpreted by markets to support the commodity-correlated Canadian Dollar.

As market sentiment grows commodity prices are expected to rise, which in turn will maximise profits in Canada’s expansive export industry. The Canadian Dollar also benefitted from its close trade ties with its North American neighbour – the United States.

Australian Dollar

Consumer Inflation is expected to remain at 2.4% during September in Australia, but this news had very little impact on the Australian Dollar, as market-players only had ears for the risk-sentiment-improving words of Federal Reserve Chairman Ben Bernanke.

The return to the Fed’s easing cycle took Sterling down a notch, from around 1.5440 to 1.5320, marking a 1.2 cent daily loss for the Pound against the Australian Dollar.

New Zealand Dollar

The Pound shed a whopping 2.5 cents to the New Zealand Dollar yesterday as Fed stimulus expectations were suitably fulfilled by the announcement of an open-ended programme to buy mortgage-backed securities in order to improve the labour market in the United States. The global-growth inducing measures led to a bullish performance for the New Zealand Dollar yesterday due to its high-yield qualities.

Data Released Today

09:00 EUR Euro-Zone Consumer Price Index (YoY) (AUG)

12:30 USD Advance Retail Sales (AUG)

12:30 USD Consumer Price Index Ex Food Energy (YoY) (AUG)

13:55 USD U. of Michigan Confidence (SEP P)

Related posts:

  1. Pound to Euro, US Dollar exchange rate: The Pound declined by around 0.8 cents against the Euro
  2. Pound to Euro, US Dollar exchange rate: The Pound declined by around 0.5 cents against the Euro
  3. Pound to Euro, US Dollar exchange rate: A strong Spanish debt auction sent the Pound to Euro exchange rate down by around 0.5 cents yesterday
  4. Pound to Euro, US Dollar exchange rate: The Euro managed to appreciate by around 0.4 cents against the Pound
  5. Pound to Euro, US Dollar exchange rate: Sterling fell against the Euro and rose against the US Dollar

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