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 when you exchange currencies.
Australian Dollar
Mario shows us what he’s made of! The Australian dollar has climbed a cent against the pound, euro, and US dollar overnight, as have the Canadian and New Zealand dollars, as head of the European Central Bank Mario Draghi announces his plan to “preserve the euro.”
Speaking at his monthly press conference yesterday, the Italian central banker introduced what he calls Outright Monetary Transactions (OMTs), a means to buy Spanish and Italian government bonds without breaking the ECB’s inflation-fighting mandate.
Justifying the measure, Mr. Draghi said OMTs would “ensure the proper transmission of our policy stance to the real economy throughout the area,” telling us, ostensibly at least, that if the Eurozone is at risk of breakup, the European Central Bank cannot fight inflation.
But in reality, as everyone knows, this is a means to hold the Eurozone together while the elected politicians dither.
Will the scheme work? Well, judging from the initial rise in the Australian, Canadian and New Zealand dollars, the markets certainly think so. OMTs should substantially reduce the risk of Spain or Italy going bankrupt, essentially throwing the Eurozone (and global) economies into chaos.
Furthermore, and quite vitally, the ECB scheme seems to have German approval too, with Chancellor Angela Merkel saying yesterday that the central bank “acted within its mandate and took appropriate measures.” That will allay concerns that Europe biggest economy will take steps to block ECB action.
How This Affects You
The announcement of OMTs has done wonders for the Australian, Canadian and New Zealand dollars against the pound, euro and US dollar, as I mention. This is because these currencies depend greatly on global optimism for their value, meaning that when a government or central bank takes steps to boost global growth, they tend to climb.
If you’re in any of these countries then, that means you can enjoy a better exchange rate when you repatriate funds to the UK, United States or Eurozone. That means you end up with a bigger UK pound or US dollar total in your domestic bank account.
What’s Going to Happen Next
Nor the European Central Bank has announced its master plan, we have to wait and see how it works in practice. We already know, for instance, that it’s dependent on Spain and Italy requesting full state bailouts from the Eurozone rescue fund, the ESM.
If Mariano Rajoy or Mario Monti decide the political cost for doing so is too high (e.g. there are too many austerity conditions attached) OMTs could well prove a damp squib after all. That could end this rise in the commodity currencies.
In addition, I should point out that the Bank of England made no changes to its monetary policy yesterday, holding interest rates at 0.5% and announcing no new quantitative easing.
Find Out More
I do hope this post has been useful. To find out more:
Read our Daily Market Commentary to find out what’s affecting the exchange rates today.
Find out answers to our Frequently Asked Questions.
Get in Touch if you have any specific queries you’d like answered.
7 September 2012
Risk Sentiment Flies as ECB Announces Bond Buying Scheme
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 when you exchange currencies.
Australian Dollar
Mario shows us what he’s made of! The Australian dollar has climbed a cent against the pound, euro, and US dollar overnight, as have the Canadian and New Zealand dollars, as head of the European Central Bank Mario Draghi announces his plan to “preserve the euro.”
Speaking at his monthly press conference yesterday, the Italian central banker introduced what he calls Outright Monetary Transactions (OMTs), a means to buy Spanish and Italian government bonds without breaking the ECB’s inflation-fighting mandate.
Justifying the measure, Mr. Draghi said OMTs would “ensure the proper transmission of our policy stance to the real economy throughout the area,” telling us, ostensibly at least, that if the Eurozone is at risk of breakup, the European Central Bank cannot fight inflation.
But in reality, as everyone knows, this is a means to hold the Eurozone together while the elected politicians dither.
Will the scheme work? Well, judging from the initial rise in the Australian, Canadian and New Zealand dollars, the markets certainly think so. OMTs should substantially reduce the risk of Spain or Italy going bankrupt, essentially throwing the Eurozone (and global) economies into chaos.
Furthermore, and quite vitally, the ECB scheme seems to have German approval too, with Chancellor Angela Merkel saying yesterday that the central bank “acted within its mandate and took appropriate measures.” That will allay concerns that Europe biggest economy will take steps to block ECB action.
How This Affects You
The announcement of OMTs has done wonders for the Australian, Canadian and New Zealand dollars against the pound, euro and US dollar, as I mention. This is because these currencies depend greatly on global optimism for their value, meaning that when a government or central bank takes steps to boost global growth, they tend to climb.
If you’re in any of these countries then, that means you can enjoy a better exchange rate when you repatriate funds to the UK, United States or Eurozone. That means you end up with a bigger UK pound or US dollar total in your domestic bank account.
What’s Going to Happen Next
Nor the European Central Bank has announced its master plan, we have to wait and see how it works in practice. We already know, for instance, that it’s dependent on Spain and Italy requesting full state bailouts from the Eurozone rescue fund, the ESM.
If Mariano Rajoy or Mario Monti decide the political cost for doing so is too high (e.g. there are too many austerity conditions attached) OMTs could well prove a damp squib after all. That could end this rise in the commodity currencies.
In addition, I should point out that the Bank of England made no changes to its monetary policy yesterday, holding interest rates at 0.5% and announcing no new quantitative easing.
Find Out More
I do hope this post has been useful. To find out more:
Read our Daily Market Commentary to find out what’s affecting the exchange rates today.
Find out answers to our Frequently Asked Questions.
Get in Touch if you have any specific queries you’d like answered.