The table below shows the percentage movement of exchange rates yesterday, along with the extra currency you could have bought if buying with £200,000.
|Currency Pair||% Change||Difference on £200,000|
Bank of England Minutes
GBP – Olympics Impact
USD & AUD
The pound took losses against all the major currencies yesterday but made gains against the Euro following the Bank of England minutes. They showed a 7-2 split at the July meeting and highlighted that it was Spencer Dale and Ben Broadbent who both opposed an increase in Quantitative Easing (QE) from £325 billion to £375 billion voting to keep QE unchanged. There was however talk amongst other members to extend by £75 billion although it was decided £50 billion would be sufficient with the additional Funding for Lending scheme. Interestingly there was also discussion to cut interest rates beyond record lows although this will be reviewed in the coming months after the new credit measures have been introduced.
Although the minutes were more dovish, there are clearly some wider views starting to appear which will only create more uncertainty for the pound going forward. The on-going talk of a rate cut which we should hear more about going forward is only likely to push sterling back down to the 1.25 levels for GBP EUR.
GBP – Olympics Impact
The UK economy saw a positive boost yesterday after unemployment data came in better than expected with the number of people out of work falling by 65,000 in the three months to May. It appears that most jobs have been created in the London area and this could be the benefits starting to come through of the potential Olympic effect. It might not be of any interest to London black cabbies but it does take unemployment down to 8.1%; a very positive number considering the UK is in recession. Sterling could be a beneficiary here but the real proof will be later in the GDP numbers!
USD & AUD
Ben Bernanke testified for his second day running and reiterated that the Federal Reserve is prepared to act to boost the economy if necessary. Other Easing tools besides QE3 are available and there is likely to be dollar volatility if these measures are introduced. After US home construction figures rose at their fastest pace for three years yesterday the FED may not have to do the above which should help keep the dollar strong and help push rates back towards the 1.54 / 1.55 levels.
It was no surprise that the Australian dollar made good gains, as a performing US and better world outlook should mean good news for the Aussie. Better data from Westpac Bank which pointed to better future economic growth also provided another boost. Although an interest rate cut may be seen in August this new data could push things forward 1-3 months which should help support the dollar further and test rates below the 1.50 level.
UK Retail sales are released this morning at 09:30 with expectation for a fall in the numbers. It’s a difficult one to call – Although the country benefitted from increased spending over the Jubilee weekend we also have had a very wet summer. With the worst June weather recorded in almost 100 years then this is going to drag the figures down. Two days of good spending around the Jubilee probably doesn’t make up for an entire month of weaker sales in these conditions. A poor set this morning, which is likely, may result in some short term sterling weakness and losses of up to 0.8% cannot be ruled out. If you have a requirement to buy Euros then you may wish to consider using a forward contract to secure a rate at these high levels whilst they are available now.
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