The Pound began sluggishly yesterday as markets pre-empted a negative outcome

The Pound began sluggishly yesterday as markets pre-empted a negative outcome.The Euro lost out by around 0.65 cents to the Pound during the last 24 hours as markets readjusted their valuations of the British currency to coincide with Mervyn King’s comments that an interest rate cut would be counterproductive to the UK’s hopes of economic revival.

  • BoE reduce growth prospects – little-to-no growth in 2012.
  • Sterling rises on King comments – “Interest rate cuts counterproductive”.
  • Unemployment grows in NZ – from 6.7% to 6.8% in Q2.
  • Peripheral Debt yields climb – Italian Spanish bond yields increase.

Sterling

The Pound began sluggishly yesterday as markets pre-empted a negative outcome from the Bank of England’s Quarterly Inflation Report. However Central Bank Governor Mervyn King’s comments that a further rate cut would be “more counterproductive than beneficial,” sent Sterling soaring against all of its major rivals.

The BoE Inflation Report was largely characterised by negativity, with King once more cutting UK growth projections, decrying the effects of the Eurozone debt crisis, and commenting on the damaging impact of one-off circumstances such as the Jubilee Bank Holiday weekend.

During the last 12 months the BoE’s growth outlook has decreased from +2% to practically zero as deterioration in the 17-nation bloc and an appreciating Pound have reduced Britain’s hopes of exporting its way out of trouble. King commented that June and July’s unseasonally wet weather mixed with the double Bank Holiday weekend have also hurt growth prospects, but that the effects of these two factors should begin to wear off in the second half of 2012. The damage, it seems, is already done and GDP growth in the UK during 2012 is expected to be minimal at best.

The downgraded forecast fell in line with analysts’ expectations, but investors took King’s insistence that a benchmark interest rate below the current record low 0.50% would be counterproductive to the UK economy as a bullish signal. Last month’s BoE minutes report sent Sterling lower as it showed that Monetary Policy Members had discussed an interest rate cut at their last meeting but King’s comments yesterday appeared to abolish such an event in the eye’s of investors, which cleared away the storm cloud that hung above the Pound and allowed it to appreciate in value.

Immediately after the Central Bank Governor made the comments the Pound managed to grow by just under 1 cent against the US Dollar and Euro, and around 0.7 cents against the Canadian Dollar, Australian Dollar and New Zealand Dollar.

Euro

The Euro lost out by around 0.65 cents to the Pound during the last 24 hours as markets readjusted their valuations of the British currency to coincide with Mervyn King’s comments that an interest rate cut would be counterproductive to the UK’s hopes of economic revival.

The single currency was also negatively impacted by rising bond yields in Italy and Spain, where it seemed that last week’s impressive gains were being reversed as investors looked to take advantage of profit-making stances. The Italian 2-year note yield grew by 10.8 basis points to 3.240% and the Spanish 24-month debt bill climbed 28.9 basis points to 3.829%.

Over in Greece worries of a Eurozone default persist with Eurogroup Leader Jean Claude Juncker stating that a Grexit would be “manageable but not desirable.” Public opposition to an additional €4 billion of cuts is also causing the Greek coalition government problems.

US Dollar

The Pound is trading 0.6 cents stronger versus the US Dollar today in response to the Bank of England’s Quarterly Inflation Report. The fact that the UK economy is expected to stagnate through the duration of the year stole the headlines in the papers but, in terms of the currency markets, the most tangible telling of future Pound prospects came from Mervyn King’s dismissal of further interest rate reductions.

With markets hopeful of slight UK economic improvements from the Central Bank’s Funding for Lending Scheme during the next few months the currency pair is expected to avoid heavy fluctuations and continue to track sideways as long as further monetary stimulus can be avoided.

Canadian Dollar

Sterling faced tough resistance when attempting to push-on against the Canadian Dollar due to Tuesday’s unexpectedly strong Canadian Ivey PMI result of 62.8. The Canadian Dollar was also supported by a rise in the price of Brent Crude Oil, which increased profits from one of Canada’s most lucrative exports. The Pound to Canadian Dollar exchange rate currently sits just below 1.5600.

Australian Dollar

The Pound appreciated by around a third of a cent yesterday against the Australian Dollar as traders anticipated a rise in the Australian Unemployment Rate from 5.2% to 5.3%. Sterling initially declined by 0.6 cents against the ‘Aussie’ during the Asian session yesterday on speculation that the BoE would cut growth projections, but the Pound rallied back towards a daily high of 1.4832 as Mervyn King erased interest rate cut fears.

New Zealand Dollar

Sterling surged on two separate occasions against the New Zealand Dollar during the past 24 hours: first in response to Governor King’s commitment to maintaining the current interest rate; and second as Statistics New Zealand announced that the Unemployment Rate increased from 6.7% to 6.8% in the second quarter which opened the door to additional monetary support.

The Pound to New Zealand Dollar improved by around 0.7 cents on King’s speech and by another whole cent following the New Zealand Employment data which detailed a quarterly contraction of -0.1% during Q2 – compared to an expected rise of 0.4%.

Data Released Today

01:30 AUD Unemployment Rate (JUL) 5.3%

01:30 CNY Consumer Price Index (YoY) (JUL) 1.7%

08:00 EUR ECB Publishes Aug. Monthly Report

08:30 GBP Visible Trade Balance (Pounds) (JUN) -£8725

Related posts:

  1. Pound, Euro US Dollar Currency Forecast – The Pound initially rallied against the majors yesterday in the foreign exchange rate markets
  2. Sterling Euro US Dollar Foreign Currency Forecast – The pound enjoyed a steadier day on the markets
  3. The Pound weakened against the U.S Dollar and the Japanese Yen yesterday
  4. The Euro strengthened against Sterling during trading yesterday
  5. The Pound received a timely boost yesterday

Article source: http://feedproxy.google.com/~r/ForeignExchangeOutlook/~3/j0p7uKfVB7s/

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