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 change currencies.
Will the third quarter go the same way as the second for the UK? That’s the talk on the foreign exchange market this morning, as the pound loses out across the board, including shedding a full cent against the New Zealand dollar.
In particular, the markets have centred on tomorrow’s Quarterly Inflation Forecast from the Bank of England. Therein, the central bank is expected to cut its 2012 growth forecast for the UK, following the –0.7% contraction in Q2, and other pessimistic figures. For instance, Halifax revealed just yesterday that house prices dipped –0.6% in July, steeper than a –0.5% forecast.
All this points to the continuing economic challenge the UK faces. As Michael Derks, currency strategist at FXPro, notes: “there is a sense that the economy is doing worse than going sideways.” This then accounts for the falling pound.
Elsewhere, one reason the euro in particular climbed against the pound yesterday is the belief that the European Central Bank will soon take action to stabilise the continent.
Following last week’s meeting of the ECB, which initially proved a disappointment, the markets now realise that: “A new intervention tool is in the making which creates unlimited firepower to defend European sovereigns,” as George Saravelos of Deutsche Bank puts it.
In other words, though the central bank didn’t take action last week, the expectation is that it will soon intervene to reduce Spanish and Italian borrowing costs. That has aided the euro.
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