Foreign Exchange - UK Daily Update - Written by jeremy on Thursday, August 6, 2009 11:15 - 0 Comments
World First Special Report 6 August 2009 - Sterling Loses A Cent As Bank Eases By More Than Expected
The Bank of England has just announced its interest rate policy for the next month and the 9 man MPC has decided to hold rates at 0.5% whilst expanding quantitative easing by £50bn, a massive shock.
The decision to continue with quantitative easing will not have been taken lightly. The UK economy is seeing signs of recovery in sectors varying from manufacturing to services and housing we are by no means out of the woods yet. PMIs have moved into expansionary territory for the manufacturing and services industries while manufacturing production has also seen increases, albeit from very depressed levels. House prices are also increasing and most analysts now believe that prices will be higher at the end of the year than at the beginning; something that if mentioned in February or March would have been greeted by laughs of indignation and jokes over your consumption of narcotics.
The one thing the MPC would have been worried about is letting the recession get a foothold again because we were unwilling to flash the cash. The similarities between titanic sporting battles and the recession are glaring: we need to dominate the recession and make it want to get back on the team bus. A decision not to spend the extra £25bn is akin to Lewis Hamilton taking his foot off the pedal as soon as he starts catching up on those ahead of him. While we can’t spend to the level that the US and Chinese can, we need to make sure that we are not intentionally running the last lap of the race having sawn our legs off at the knee.
The market has taken the decision very badly with sterling losing a cent against both euro and dollar in the space of 2 seconds A near term worry is next week’s inflation report. The last two can be accurately summed up in one word: uncertainty. We expect there to be much of the same on Wednesday and sterling could be due a further sharp dip.
So where to now?
Given the move that sterling has seen, especially against the dollar, over the past three weeks a lot more analysts are coming out of the woodwork with thoughts over the pound’s course throughout the rest of the year.
Most are still bullish for the pound and subscribe to the view that with the recessionary tide rolling back, the fears and concerns that shook risky assets at the end of last year will continue to diminish. As such, they expect the dollar to weaken as investors previously looking for security now feel happy to play in more uncertain asset classes and sell dollar holdings.
However, we are hearing an increased call for sterling falls in the next six months. Hans Redeker, Global Head of FX Strategy at BNP Paribas and someone who the FX market takes very seriously, predicts a cable rate below 1.60, “possibly in the low $1.50s in six month’s time.” He bases this on the belief that the uptick that global manufacturing has seen over the past few months is a kneejerk reaction to businesses winding down inventories during the lean months. Should global demand not reciprocate we are basically back where we started.
To discuss this further or to ask about products that can protect you and your business against adverse currency movements whilst being also able to take advantage of beneficial developments please email the Corporate Desk by clicking here or by calling 020 7801 9050.
|
Please feel free to contact me (jeremy.cook@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our: Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080. To view any past or present currency blogs please click on the following link www.worldfirst.com/blog. |
|
Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice. Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms. Please click here if you would like to stop receiving the World First Special Report. |
Leave a Reply