Wednseday has seen a relatively flat day on the markets by close of European trading and we could well of seen the calm before tomorrows storm. We have the European central Banks (ECB) interest rate decsion and if they decide to cut rates from the current 0.25% level as widely mooted, then we could see the euro suffer as a result. We also have the Bank of England’s interest rate decsison and whilst this is meant to remain on hold at 0.5%, I do feel those holding Sterling have more to worry about and here is my reasoning for that.
Today UK PMI data for the service sector was released and it made for grim reading, as figures showed it had fallen to an eight month low. We have already seen UK PMI construction data fall to its lowest point in 2 and a half years yesterday, which sent shockwaves through the UK economy, as it was a fall in this figure that many experts believe resulted in the UK re-entering recession at the start of 2012.
This to me indicates it is very likely we will hear an annoauncemnt tomorrow from Mervyn King that of a further round of Quantitative Easing is needed, in order to give the UK economy a boost. If you add to this the damning views of Mr King on the UK’s banking sector and the current debacles with Natwest and Barclays, then to me it looks as if investors will lose short-term confidence in GBP.
We have already sen the USD gain over half a cent on GBP today, moving through 1.56 at time of writing and this to me is already a reaction to this poor UK data. Whilst its impossible to know the exact outcome of any economic decision on the currency markets I do feel any of you holding Sterling and looking to buy either EUR, USD or AUD should keep a close eye on events tomorrow, as I fear the results could cause GBP levels fall away over the coming weeks.
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