by Adam Solomon
Sterling / Euro and US Dollar exchange rates
The Pound rallied for the second consecutive day against the Euro exchange rate, rising up through 1.15 in early trading, amid renewed concerns that European policy makers will fail to resolve the sovereign debt crisis and prevent a Greek default, fuelling demand for the Pound as a haven from the crisis. The UK currency made gains against all but two of the 16 most actively traded currencies.
There was increased speculation and uncertainty whether Greece will receive its next round of emergency stimulus, amid suggestions that the government will need to implement further austerity measures. The Pound also climbed over 1% against the U.S Dollar, bouncing back from the lowest level since January.
Bank of England policy maker Ben Broadbent said yesterday that he almost voted for additional stimulus measures to be introduced this month to support the UK economy, amid a lower outlook for growth and inflation. Earlier in the day, he said the global environment is “disinflationary” and external factors are likely to restrain the UK economic recovery.
Broadbent’s first public speech since joining the Monetary Policy Committee in June comes as officials discuss whether to implement for further quantitative easing in the form of bond purchases. While the MPC voted 8-1 to keep the bond-purchasing plan unchanged at £200 billion this month, the August minutes of the meeting showed that most officials see further QE as “increasingly probable”.
Broadbent’s comments may provide an insight into the voting pattern for October and there is an increasing likelihood that the Bank of England will move to extend bond purchases and that would tend to undermine confidence in the Pound. The UK currency has gained 1.7% in value over the past three months, reducing its yearly decline to 4%, making it the worst performing currency on a trade weighted basis.
Euro / US Dollar exchange rates
The Dollar came under renewed selling pressure against the Euro exchange rate yesterday, extending a two day decline, as Asian stocks extended a rally in global equity markets, dampening demand for the Dollar as a safe haven. As a result of the increase in risk appetite, the Australian Dollar advanced for a third straight day against the Dollar and bounced back from a low of 1.60 versus the Pound.
The Euro came under pressure earlier in the day, as Italy and Spain prepare to sell short-term debt but the decline was short-lived amid an improvement in stock market sentiment. In terms of economic data in the U.S, consumer confidence remained largely unchanged close to the weakest level since April 2009, which also served to weaken the Dollar and increase concerns about the U.S economy.
Today’s Exchange Rate Data
GER 07:00 – Gfk Consumer Confidence (October)
EU 09:00 – M3 Money Supply / 3 Mth Avg (August)
U.K 11:00 – CBI Distributive Trades Survey (September)
U.S 14:00 – Case Shiller House Price Index (July)
U.S 15:00 – Consumer Confidence (September)
U.S 15:00 – Richmond Fed Survey (September)