Good morning and welcome to today’s foreign exchange market commentary on Thursday, the 23rd of February.
The Sterling hit its lowest point in five months against the euro yesterday and breached the bottom of the range that it has continued to occupy since the beginning of the year and is trading at near the 10-week low now. One reason of course remains Tuesday’s successful debt deal. The other reason for the decline is the latest Bank of England minutes.
Latest record from the BoE showed that two members of the Monetary Policy Committee voted in favour of an additional £75 billion of quantitative easing against the consensus of £50 billion. There is a real risk of weak demand driving inflation down below the target in the short term, argued the two most dovish members of the MPC Adam Posen and David Miles.
Inflation has started to moderate this year and falling prices definitely augur well for the common people. However, a prolonged price fall may trigger a deflation, a much graver problem that causes the economy to shrink and feed on a self-sustaining vicious cycle. A further dip in inflation will make a good case for another round of asset purchase by the BoE in May.
The situation can take a different turn if the oil crisis escalates. Oil prices have already hit their highest in nine months yesterday. A continued deadlock in Tehran will force the European Central Bank to raise rates to reign in inflation in the world’s most fragile ecosystem now, slowing down recovery.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1817
GBP/US$ – 1.5684
GBP/CHF – 1.4242
GBP/CAN$ – 1.5661
GBP/AUS$ – 1.4704
GBP/ZAR – 12.0562
GBP/JPY – 125.745
GBP/HKD – 12.1685
GBP/NZD – 1.8881
GBP/SEK – 10.441
EUR: The single currency performed well against the greenback yesterday. The cable also retreated against the euro with the GBP/EUR falling to 1.1821 despite starting the day at 1.1900. One of the triggers for the Sterling’s slide was the market’s apprehension of a bigger asset purchase programme in the coming days. The downgrade of Greece by Fitch didn’t much of an impact on the common currency. Markets will remain focused on the German IFO data due today. The GBP/EUR pair opens at 1.1796 this morning.
USD: The dollar strengthened against the cable yesterday and performed well generally against global currencies. The vote by MPC members Posen and Miles for a bigger asset purchase was the immediate trigger for the Sterling’s near sell-out and drove the GBP/USD pair down to 1.5649, where it traded heavily at that level for the rest of the day. Initial jobless claims are due today from the other side of the Atlantic today while CBI Industrial Trends Survey and BBA mortgage approvals are due in the UK today. The GBP/USD pair opens at 1.5697 this morning.
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Have a great day!
