by Peter Lavelle
Welcome to the Pure FX account of the latest changes in the foreign exchange rates.
This is intended as a brief guide to movements in the exchange rates overnight, to put you in the best position for when you exchange currencies.
Euro
Moody’s avoids cutting Spain’s credit rating to Junk status
The euro gained overnight, taking more than a cent from the US dollar in particular, as credit rating agency Moody’s unexpectedly holds Spain at investment grade.
Ahead of the announcement, Moody’s had been widely forecast to cut Spain to Junk status, meaning its bonds would no longer be trustworthy. However in the event, Moody’s held Spain at its current ranking of Baa3, just one rank above Junk, while adding a Negative outlook.
This then benefited the euro because, as Daisaku Ueno of Mitsubishi UFJ Morgan Stanley comments, “The decision came out as a positive surprise for the euro as the market had expected a possible downgrade.” In other words, if Moody’s holds Spain at investment grade, that suggests things in the Iberian nation are not yet so dire.
Tomorrow’s European Union summit expected to disappoint
However, it’s quite possible these euro gains could be short lived, ahead of a summit of European Union leaders tomorrow in Brussels. Therein, politicians are expected to discuss a possible Eurozone redesign, and the fate of Greece, among other things.
On the downside though, unless a concrete proposal to end the euro crisis emerges, it’s possible this summit could end a damp squib. As Callum Henderson of Standard Chartered Bank remarks, “Our expectation is…that the European summit yet again will be a disappointment and then [the euro] will go back down.”
UK Pound
UK inflation falls to 2.2%, its lowest point since 2009
Elsewhere, the pound was broadly unaffected yesterday by reports that inflation in the UK fell to its lowest point since 2009 in September, at 2.2%. This compares to 2.5% in August, and is the closest inflation has come to the Bank of England’s 2.0% target in almost three years.
However, the truth is that this brings mixed tidings for the pound. On the one hand, it could lift the UK currency, as lower inflation encourages higher retail spending among consumers. On the other hand, it also means there’s no impediment to the Bank of England launching a fifth round of quantitative easing in November, hurting sterling because it increases the supply of money in the market.
Coming Up
The foreign exchange focus is likely to remain on the UK today, as both the latest Bank of England minutes are released, as is the September unemployment rate. If these prove positive, we could see the pound rise, which could be of benefit if you plan to sell the UK currency.
Find Out More
I do hope you’ve enjoyed reading this post. To find out more:
Read our Daily Market Commentary to find out what’s affecting the rates today.
Take a look at our Foreign Currency Exchange Advice articles.
Look through our Top Tips to maximise your foreign currency transfer.
17 October 2012
Foreign Exchange Risk Sentiment Lifts as Moody’s Holds Spain at Investment Grade
by Peter Lavelle
Welcome to the Pure FX account of the latest changes in the foreign exchange rates.
This is intended as a brief guide to movements in the exchange rates overnight, to put you in the best position for when you exchange currencies.
Euro
Moody’s avoids cutting Spain’s credit rating to Junk status
The euro gained overnight, taking more than a cent from the US dollar in particular, as credit rating agency Moody’s unexpectedly holds Spain at investment grade.
Ahead of the announcement, Moody’s had been widely forecast to cut Spain to Junk status, meaning its bonds would no longer be trustworthy. However in the event, Moody’s held Spain at its current ranking of Baa3, just one rank above Junk, while adding a Negative outlook.
This then benefited the euro because, as Daisaku Ueno of Mitsubishi UFJ Morgan Stanley comments, “The decision came out as a positive surprise for the euro as the market had expected a possible downgrade.” In other words, if Moody’s holds Spain at investment grade, that suggests things in the Iberian nation are not yet so dire.
Tomorrow’s European Union summit expected to disappoint
However, it’s quite possible these euro gains could be short lived, ahead of a summit of European Union leaders tomorrow in Brussels. Therein, politicians are expected to discuss a possible Eurozone redesign, and the fate of Greece, among other things.
On the downside though, unless a concrete proposal to end the euro crisis emerges, it’s possible this summit could end a damp squib. As Callum Henderson of Standard Chartered Bank remarks, “Our expectation is…that the European summit yet again will be a disappointment and then [the euro] will go back down.”
UK Pound
UK inflation falls to 2.2%, its lowest point since 2009
Elsewhere, the pound was broadly unaffected yesterday by reports that inflation in the UK fell to its lowest point since 2009 in September, at 2.2%. This compares to 2.5% in August, and is the closest inflation has come to the Bank of England’s 2.0% target in almost three years.
However, the truth is that this brings mixed tidings for the pound. On the one hand, it could lift the UK currency, as lower inflation encourages higher retail spending among consumers. On the other hand, it also means there’s no impediment to the Bank of England launching a fifth round of quantitative easing in November, hurting sterling because it increases the supply of money in the market.
Coming Up
The foreign exchange focus is likely to remain on the UK today, as both the latest Bank of England minutes are released, as is the September unemployment rate. If these prove positive, we could see the pound rise, which could be of benefit if you plan to sell the UK currency.
Find Out More
I do hope you’ve enjoyed reading this post. To find out more:
Read our Daily Market Commentary to find out what’s affecting the rates today.
Take a look at our Foreign Currency Exchange Advice articles.
Look through our Top Tips to maximise your foreign currency transfer.