Anticipation of quantitative easing weakens sterling

Published: 09 February, 2012

Sterling weakened across the board, due to anticipation of a further round of quantitative easing.

Currency rates & comments - February 9

EURO/GBP - 1.1924

US$/GBP - 1.5842

CHF/GBP - 1.4432

CAN$/GBP - 1.5767

AUS$/GBP - 1.4654

ZAR/GBP - 11.991

JPY/GBP - 122.28

HKD/GBP - 12.2834

NZD/GBP - 1.8945

SEK/GBP - 10.5321

AED/GBP - 5.8116

US$/EURO - 1.3280

INR/GBP - 78.12

Yesterday in the UK, the shop price index data came in worse than expected, another reason to potentially expect more quantitative easing. It is anticipated that a £50 billion pound increase in the Bank of England's asset purchases will be announced. Interest rates are expected to remain at 0.5%. The yield on 10 year Government bonds also reached a two month high yesterday. In more positive news, Standard and Poor's (one of the three main credit rating agencies) said that the UK has benefited from a floating exchange rate suggesting we have faired better thought the global economic crisis by not being part of the euro.

The Eurozone yesterday saw yet more delays in Greece as the deadline was once again surpassed on Tuesday night for the Prime Minister to agree terms with the leaders of the other political parties. The Prime minister also held an unscheduled meeting on Tuesday night with the "Troika", comprising the European Commission, the European Central Bank and the International Monetary Fund to try and put the final touches on terms required for a 130 billion euro rescue package. Alarmingly, Standard and Poor's stated that there was a 1 in 3 chance of a rating cut in most Euro nations; but, this does not include Germany. Rumours yesterday also suggested that China may be looking to "move shortly" to help Europe resolve its debt crisis by providing as much as 100 billion euro's.

Little data was released in the US with the worlds focus remaining on Greece. One of the members of the Federal bank was speaking where amongst many things stated that the US doesn't need to raise tax or to make drastic cuts at present. He also reiterated some of The Chairman of the Federal Bank comments from Tuesday stating that the economy has performed "pretty" well and that job growth was good for the time being; however, he also mentioned that the US is "clearly on unsustainable path" of deficits and that the fiscal issue is the "biggest" long-term challenge that the US faces. Standard and Poor's also stated that the US has a one-in-three chance of another downgrade due to the he government's failure to agree on a path to reduce its deficit.

Elsewhere yesterday saw the Swiss unemployment rate come in as expected. Japanese economic sentiment came in worse than expected; but, the number of new houses that began construction in Canada came in better than forecasts predicted. Out first thing this morning is the release of Chinese Consumer Price Index (CPI) data and household consumer confidence in Switzerland.

Supplied by Nick Ryder of Smart Currency Exchange, the currency partner to Harpers Wine and Spirit who have teamed up with Smart to provide readers with a free bespoke currency service. Go to www.smartcurrencybusiness.com/winespirit for more information or call on 0207 898 0500.

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