Pound to Euro, US Dollar exchange rate: The Pound remained under 1.24 against the Euro yesterday but the UK currency staged an impressive rally

Currency

The Pound remained under 1.24 against the Euro yesterday but the UK currency staged an impressive rallyThe fragile increase in risk sentiment didn’t last too long, as all eyes were focused on the FOMC rate announcement last night.

Sterling / Euro and US Dollar exchange rates

The Pound remained under 1.24 against the Euro yesterday but the UK currency staged an impressive rally towards 1.5750 versus the U.S Dollar, despite a report from the Bank of England, which showed that the decision to keep bond purchases on hold this month was a very close call. The minutes from this month’s policy meeting showed the committee voted 5-4 against additional stimulus measures.

There is a very good chance that the MPC will take the decision to implement additional quantitative easing measures in the July 5th meeting, as policy makers look to support the economy and protect against the threat of contagion from the Euro-zone. Recent comments from a number of Bank of England officials, including the governor Mervyn King, has indicated a shift in focus with Adam Posen expressing his regret that he removed his recommendation for additional stimulus.

The recent economic data has also supported the case for more stimulus, as a report this week showed that UK inflation contracted on the month for the first time since records began in 1996. Falling inflation and slowing growth has given the BoE the spare capacity to inject further stimulus into the economy but the Pound actually made gains against the Dollar in the aftermath of yesterday’s data.

It is widely perceived that quantitative easing would have a negative effect on the Pound but it’s having a positive impact on risk sentiment. It shows that the Bank of England are willing to do what is necessary to support the economy during this double-dip and alongside the Fed and the ECB, central banks are showing a commitment to boost growth.

Elsewhere, the latest UK claimant count was weaker-than-expected with an increase of 8,100 for May, after a revised 12,800 decline this month. The net data was, however, slightly more encouraging with unemployment edging lower. The Pound weakened against the Australian and New Zealand Dollars, as global risk appetite improved, but there is a host of economic reports released today, including the latest retail sales numbers.

Euro / US Dollar

The fragile increase in risk sentiment didn’t last too long, as all eyes were focused on the FOMC rate announcement last night. The Fed made no move to launch a third round of quantitative easing, amid an 11-1 vote with regional President Lacker dissenting. The Euro fell sharply following the announcement, before reversing the losses in volatile trading conditions, as Angela Merkel admitted that bond purchases could be considered through the EFSF/ESM mechanism.

The Federal Reserve also cut economic growth forecasts with the 2012 estimate lowered by 0.5% and the chairman Ben Bernanke insisted that all policy options were open. The conclusion of the FOMC meeting was that the Fed are still committed to act if necessary through quantitative easing and this helped settle risk appetite, weakening demand for the Dollar.

In the Euro-zone, the initial audit of Spain’s banking sector is due to be presented today with a provisional estimate of fresh capital required and this is likely to trigger a formal Spanish government request for aid. There was also agreement to form a coalition government in Greece, headed by New Democracy leader Samaras.

Data Released Today

EU – Europe/Eurogroup Finance Ministers’ Meetings (to Friday 22nd)

EU 08:58 – Flash Markit PMI – Composite (June) – Manufacturing / Services

EU 09:00 – Current Account (April)

U.K 09:30 – Retail Sales (May)

U.K 11:00 – CBI Industrial Orders (June)

U.S 13:30 – Initial Jobless Claims (w/e 16th June)

U.S 13:58 – Flash Markit Manufacturing PMI (June)

EU 15:00 – Consumer Confidence (June)

U.S 15:00 – Existing Home Sales (May)

U.S 15:00 – Leading Indicators (May)

U.S 15:00 – Philly Fed Business Survey (June)

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