The pound was under some pressure on Friday as the Bank of England (BoE) announced that it would be lending the treasury £35bn pounds to help balance the books and reduce public debt.
BoE Governor Sir Mervyn King said the move equated to modest monetary loosening. (QE) This caught markets off guard and saw the pound slide 0.5% to its lowest level since Sept 6 against the USD and also weakened from a 5 week high against the Euro after the announcement.
All that we know for now is that the Chancellor wrote in a letter to Sir Mervyn King stressing that the cash transferred to the Government would likely need to be paid back to the Bank in the future. Under the arrangement, £11bn is expected to be handed to the Treasury this year, with the remaining £24bn paid in four instalments over the next financial year.
What will happen this week with sterling as a result of the announcement?
What we do not know at present is what the consequences could be with this new move. Will there be more of this? Is this the new policy? The questions are unanswered!!
I feel that the timing of this release was key. It was chosen to be released once the markets were closed so I am inclined to feel that this will weigh on the pound over the course of this week with levels back down to 1.24 against the Euro. The BoE will release its latest growth and inflation projections in Wednesday’s inflation report. Maybe they will give us some answers at that time.
Other important key UK data releases this week include:
Tuesday 13th at 9.30: Inflation data.
Tomorrow we have a whole batch of inflation data which could weigh heavily in the lead up to the BoE quarterly inflation report out on Wednesday. With Inflation seemingly one of teh key releases this week all around the globe I imagine we will see a fair bit of movement over the course of this week for global exchange rates.
Wednesday 14th at 9.30: Employment figures & Claimant count. BoE Quarterly inflation report: Speech by Governor Sir Mervyn King:
As discussed the Quarterly inflation report will be one of the key releases this week with the Governor Sir Mervyn King discussing the outlook in a speech. If you have a requirement to move exchange funds you may wish to look at doing this before the release. If his report paints a gloomy picture then the pound could be under some serious pressure.
Thursday 15th at 9.30 Retail figures.
Always a key data release which ultimately has an effect on the UK GDP figures. Over the Olympics retailers in London stated that retail was down but the GDP figures which came out squashed those thoughts. Retail figures are expected to decline by -0.1% for the month. If these figures are worse then we may see the pound drop towards that 1.24 level come the end of the week.
If you have a requirement to buy or sell the pound you may wish to consider acting sooner rather than later as the uncertainty of the data releases could cause the pound to be extremely volatile this week. If you require a trading account or would like to speak with myself about your requirement and options that are available to you then please feel free to email me at email@example.com
Thank you for reading.