Sterling bounces back after IMF suggests UK monetary injection

Published: 23 May, 2012

Sterling came under pressure yesterday but recovered in the afternoon as the International Monetary Fund said the UK needs to consider injecting more money into the economy.

Currency rates - May 23

EURO/GBP - 1.2414

US$/GBP - 1.5742

CHF/GBP - 1.4910

CAN$/GBP - 1.6097

AUS$/GBP - 1.6094

ZAR/GBP - 13.154

JPY/GBP - 125.16

HKD/GBP - 12.2231

NZD/GBP - 2.0946

SEK/GBP - 11.271

AED/GBP - 5.7861

US$/EURO - 1.2672

INR/GBP - 88.12

It also suggested cutting interest rates to stimulate growth. Furthermore, data released in the UK showed that inflation has fallen to a two-year low, dropping from 3.5% to 3%. Both this month's Monetary Policy Committee meeting minutes and monthly retail sales data are released today, with the former potentially revealing the central bank's intention to increase its accommodative monetary easing. If more members have voted for further quantitative easing than expected, then sterling could come under pressure today.

The euro was struggling yesterday due to the news that the Organisation for Economic Co-operation & Development had downgraded the growth forecasts in the EU, and for Spain and Greece in particular. The EU economic summit should shed some light on any potential measures that could be implemented to fight the debt crisis and boost growth; however, with German Chancellor Angela Merkel and French François President Hollande having very different opinions on the right cause of action, we will have to see what the outcome will be.

The US dollar performed well yesterday as risk aversion drove the markets due to the OECD and IMF announcements underlining a weak global economy. Existing home sales figures released yesterday came in above markets' expectations, recovering from last month's decline. New home sales figures will be the main data on the agenda and investors will look for more positive data mirroring yesterday's release.

Elsewhere, Fitch (one of the big three credit-rating agencies) downgraded Japan's sovereign rating to A+ with a negative outlook, which caused the yen to weaken against the majority of currencies, despite its traditional "safe haven" status. The OECD made the suggestion that Canada should look to raise interest rates to counteract inflationary pressure. The official call rate from Japan and its monetary policy statement was announced first thing this morning; furthermore, retail sales figures from Canada are also released today.

http://www.youtube.com/watch?v=at1_TQv4EBI&feature=youtu.be

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