Big week ahead for the pound
The week ahead will certainly prove to be extremely volatile for the pound. With very little data to note of in the early part of the week things will liven up on Wednesday when we have the release of the Bank of England’s minutes and the spending review from the government.
As mentioned in previously the minutes from the interest rate decision can cause sterling exchange rates to move quite rapidly. This month’s will not be any different but the focus will probably be more on the vote on QE.
Policymakers at the Bank of England appear to be split on the need for more QE: David Miles last week said inflation was too high and Andrew Sentance has argued and voted for rates to be raised in recent months to control inflation. Fellow MPC member Adam Posen is the main cheerleader for QE, with his pessimistic outlook on the real economy so watch out for this release first thing on Wednesday morning.
The USD seems to weakening by the day at the moment hitting a 15 year low against the YEN, 8 month lows against the Euro and pound while also hitting parity with the CAD and AUD all on the back of growing speculation that the U.S. Federal Reserve will ease monetary policy.
Federal Reserve Chairman Ben Bernanke on Friday offered his most explicit signal yet that the U.S. central bank was set to ease monetary policy further, but provided no details on how aggressively it might act.
“There would appear — all else being equal — to be a case for further action,” Bernanke said at a conference sponsored by the Boston Federal Reserve Bank.
So it seems that further QE is on the horizon in the US and this could be the beginning of a currency war in which each country tries to weaken its currency at the expense of others to keep their own exports more competitive.
Currently there are some good opportunities to buy the USD but if the UK has a batch of bad data or does implement QE into the economy then we could see the current spike disappear so now may be time to take advantage.
By contrast to the UK and US the ECB has shown no appetite for printing more money helping the EURO strengthen immensely over the last month. Tomorrow we have construction data out for the whole Euro Zone and a ZEW survey for Germany which looks at investor sentiment. If there is an increase in either the Euro could continue its rise and make that currency exchange even more expensive.
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