Sterling drops sharply due to further Quantitative Easing concerns

Published: 22 June, 2011

Sterling dropped sharply against the euro yesterday after it was signalled that the UK could be in for further Quantitative Easing if deflationary pressures mount.

Currency rates - June 22

EURO/GBP - 1.1274
US$/GBP - 1.6233
CHF/GBP - 1.3662
CAN$/GBP - 1.5774
AUS$/GBP - 1.5310
ZAR/GBP - 10.894
JPY/GBP - 130.24
HKD/GBP - 12.644
NZD/GBP - 1.9947
SEK/GBP - 10.314
US$/EURO - 1.4399

Earlier in the year, markets had been anticipating an interest rate rise as early as April 2011, but this assessment by key Bank of England policy maker, Paul Fisher is not necessarily a surprise. With recent UK data underperforming, analysts have now pushed back expectations of an interest rate hike in the UK well into next year. The Bank of England's minutes from this month's meeting are released today and they are expected to show a continually loose monetary stance from the Bank of England.

After a turbulent day on Monday, the euro held on to slim gains against other currencies as investors bet that a rescue plan would be put together to prevent Greece from defaulting on its debt. However, there was a major hurdle in the form of a confidence vote in the Greek Parliament. Primeminister, George Papandreou had to win the vote in order to pave the way to enacting tough austerity legislation. Papandreou won the vote of confidence and investors took profits from the relative strength of the euro.

In the USA, the US dollar had a subdued day for the most part yesterday as a recent run of poor economic data left investors expecting the worst ahead of the Federal Reserve's policy meeting. Data released yesterday showed that purchases of existing homes fell last month and the poor performance of the housing market is one reason why many expected the Fed to maintain monetary stimulus or even increase it. The Fed's statement is due later today, and most are not expecting any US dollar strength as a result.

Elsewhere, the Australian dollar fell yesterday after the minutes of the Reserve Bank of Australia's June meeting showed the bank thinks recent data has not added any urgency to the need for monetary tightening.

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