Sterling benefits from BoE surprise | Smart Daily Currency Note
GBP/USD – 1.5161
Sterling appreciated sharply yesterday morning in response to a double dose of positive data. The Monetary Policy Committee meeting minutes revealed a surprise 9-0 vote in favour of maintaining the Bank of England’s quantitative easing target instead of increasing it. This caused sterling to jump over a cent against the US dollar and euro as many key figures expected the vote to show several members (including the new Governor Mark Carney) to vote in favour of increasing the quantitative easing program, rather than the unanimous decision against this that was revealed. Performance was further boosted by data showing that unemployment claims dropped by over 20,000 in June, a much greater reduction than predicted. Sterling continued to perform well yesterday afternoon, trading at 1.16 against the euro and hovering above 1.52 against the US dollar. This morning sees the release of monthly UK retail sales data, which has the potential to either check or reinforce today’s optimism should figures differ significantly from predictions. Call in now to stay on top of continuing market reaction.
If investors were hoping for a clearer expression of intent from Fed Chairman Ben Bernanke, then they were certainly disappointed by his somewhat illusive report to Congress. Rather than laying out plans for future reductions in asset-buying, Bernanke remained accommodative and stated that the programme may be increased or tapered depending on economic conditions. Going forward this means that the US dollar is likely to be sensitive to changes in economic data in particular inflation data, as Bernanke stated that a slowing in asset-purchasing would be likely to happen if US inflation made a determined move towards the 2% target. Looking at the rates, the US dollar depreciated considerably against sterling in response to sterling strength, whilst a more mixed performance was registered against the euro. Bernanke will continue to testify to Congress today as US unemployment claims data is released as well as Philadelphia manufacturing data. Expect further volatility as markets react. Call in now to stay on top of developments and to receive a live rate.