Pound under pressure

Wednesday saw the Sterling initially slip against a basket of currencies as the BoE minutes for October’s meeting showed a split vote, with the MPC’s vote splitting three ways, causing the pound to drop from the 1.14 range to a low of 1.1399. The minutes showed that the MPC are starting to consider more Quantitative Easing in the coming months voting 7-1-1 with the majority vote unchanged.

As per his strategy used over the last few months Sentence voted for a rate hike, and it was Posen that wanted an increase of 50 billion Quantitative Easing. This uncertainty added with the rise in public sector borrowing and falling money supply caused the pound to fall to a near four month low against the dollar to a level of 1.5629. The pound was already under huge pressure from these two data releases as investors awaited details of the massive UK government spending cuts about to be announced at 12.30 by George Osborne. Lunchtime came and sterling showed little reaction to Osborne’s speech on the spending review as it came pretty much in line to market expectations. Throughout his speech GBP/USD was hovering around the $1.57, but did start to weaken against the Euro before recovering in later afternoon trading sessions. If the cuts were viewed as too drastic or rapid this would cause concern as the government’s fiscal consolidation programme would sloth growth. This in turn would then raise the possibility of further monetary stimulus, which would weigh heavily on the pound causing it to weaken. Earlier in the year sterling came under huge selling pressure as investors were concerned the UK may not trim its borrowing and spending enough to retain its top tier credit rating. The euro has climbed more the 8% against sterling since June with the Aussie dollar rising 11% against the pound since July.

Elsewhere across the pond we saw the dollar trading lower in the morning ahead of the Beige Book report due out at 7pm this evening, this is generally to show the US recovery losing steam. Unemployment and consumer spending both remain a problem for the U.S with no meaningful improvements in sight. Most people are convinced the U.S recovery is slowing which has caused investors to sell the green back therefore any negativity from the release will already have been priced into the markets.

Tags:  Aussie Dollar, BoE, euro, Exchange foreign, foreign exchange, Pound under pressure, Spending Cuts, sterling, us dollar