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Currency update, October 13 - Bank of England comments cause sterling to fall

Published:  13 October, 2010

Sterling fell against both the euro and US dollar yesterday after downbeat comments from yet another member of the Bank of England's Monetary Policy Committee saw investors lose confidence in the UK economy.

Currency Rates
EURO/GBP - 1.135
US$/GBP - 1.586
CHF/GBP - 1.517
CAN$/GBP - 1.599
AUS$/GBP - 1.609
ZAR/GBP - 10.858
JPY/GBP - 129.89
HKD/GBP - 12.312
NZD/GBP - 2.096
US$/EURO - 1.397
HUF/GBP - 310.26

In a speech in Dublin, MPC member David Miles stated that Quantitative Easing ("QE") "remains a potentially powerful tool and one that we might come to use". Miles' comments echo those of colleague Adam Posen who advocated further monetary easing just a few weeks ago. Sterling dropped to within sight of the five month low it hit against the euro last week and slipped by 0.5% against the US dollar suggesting that it is incredibly sensitive to swings in sentiment over whether the Bank of England will put more money into the economy or not. On a more 'positive' note, inflation stayed at 3.1% which could dissuade the bank from further QE however the British Chamber of Commerce presented data that showed that economic activity had slowed sharply in the 3rd Quarter. Adam Posen speaks later today so expect further poor sentiment to damage sterling, so speak to one of the team today about the implications of this on your payment.


In the Euro zone, it was a fairly quiet day for data with the euro moving on UK and US sentiment. Against the US dollar, the euro slipped as markets await further clarification on the Federal Reserve's plans to pump more money into the US economy and traders scaled back on some riskier trades ahead of this evening's FOMC minutes (the US equivalent of the Monetary Policy Committee). Out later today, there is French inflation data and industrial production figures for the region. Call in now to ensure you maximise the value of your exchange by trading at the right time.


In the USA, stock markets fell across the board in anticipation of the FOMC minutes that were released late last night. With many expecting details of further monetary easing to be released, a large number of traders pulled back on 'extreme' short positions in case the news came in unexpectedly and the markets moved against them. This saw the US dollar strengthen across the board - somewhat bizarrely given that it was concern over the US economy that spurred the move. In terms of data, there is import price data and Fed Chairman Ben Bernanke speaks to Congress.


Elsewhere, Canada's federal budget deficit for the 2009-2010 fiscal year totalled C$55.6bn (3.6% of GDP) which signalled to many that the Canadian economy is running out of steam. Canada has seen a boost related to high demand for commodities related to the booming Chinese economy. Call in now for a live rate of exchange.


Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service.


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