Welcome to our account of movements in the foreign exchange rate in the past 24 hours, including our look ahead.
1. The US dollar has sunk against the pound and euro overnight, as secret polls predict a pro-euro government will triumph in Greece this weekend. This could keep the stricken country in the euro, and prevent the financial showdown everyone is eager to avoid.
What do you mean ‘secret’ polls?
Greek law bans opinion polls being published a fortnight before an election, to avoid undue influence on voters. But in spite of this, illegal (or secret) polls have been leaked, indicating that pro-bailout moderates New Democracy should secure enough support to form a government. That would hopefully keep Greece in the euro.
Why has this pulled down the US dollar?
Because if Greece looks set to remain in the euro, that makes the outlook in Europe that much more secure. That then encourages the markets to sell safe haven currencies like the USD, and invest in the euro and pound. Of course, we won’t know for sure if Greece is set to remain in the euro until after the election this Sunday.
2. The pound meanwhile has lost ground against the Australian dollar today, as the Chancellor and Bank of England announce a new £80 billion stimulus fund for the UK economy.
What’s this stimulus fund?
It’s a bit like quantitative easing, in that the Bank of England will print money and then pass it on to banks. However, unlike previous stimuli, the central bank will only lend the money if banks promise to pass on the benefits onto businesses. This is hence intended to avoid the problem that, with previous rounds of quantitative easing, the banks just kept the funds themselves to bolster their balance sheets.
Why has this helped the Australian dollar?
Because it indicates the UK economy is in worse shape than previously thought, and hence warrants support. That sends a negative signal to investors, who therefore sell the pound. The Australian dollar has gained because, compared to the UK and most industrialised nations, Australia is in a fantastic position.
Get in touch
I do hope this post has been useful. I will return with my next update next week.
If you have any questions about the foreign exchange rate or transferring money abroad in the meantime, don’t hesitate to leave a reply in the box below. I’d be delighted to provide an in-depth personal answer to your enquiry, free of charge.