Sterling suffers as the US recovers | Smart Daily Currency Note

Sterling

America sneezes and the UK catches a cold. The Federal Reserve laid out its time plan for reducing and ending its programme of quantitative easing last night and sterling quickly lost ground against both the US dollar and the euro. Not a surprise against the US dollar as any programme of quantitative easing should always weaken a currency as international investors look for constant yields, so the ending of it should strengthen a currency. However it is surprise to see the euro strengthen at the same time. Perhaps its uncertainty about what the UK is likely to do with its programme of quantitative easing as yesterday saw the publication of minutes from June's Bank of England monetary policy committee meeting which again revealed that three members had voted for additional monetary stimulus. Outgoing Governor Mervyn King as well as two other policymakers voted in favour of increasing the size of the asset purchase facility by a further 25 billion pounds, whilst six voted in favour of keeping it steady. The vote on interest rates was unanimous in holding levels at a record low of 0.5%. Matters could be different however in next month's meeting when Mark Carney takes over at the Bank of England. Previously a staunch advocate of loose monetary policy, many are still unsure whether he will follow his predecessor in looking to augment the money supply. Look out for retail sales data today affecting price levels by talking to your trader.

Euro

Yesterday was a quiet day for the euro with the single currency seeing little movement against both its sterling and US dollar counterparts until the Federal Reserve announcement towards the end of the day. We can expect further volatility today as traders react to both Services and Manufacturing Purchase Manager's Index data from France and Germany due to be released this morning. Germany has started to show more sustained strength across different sectors, though more bad news emanating from the French economy is likely to further permeate through to the political and social unease among the population. Much attention will be on today's Eurogroup meetings, with a cohesive strategy for ending the recession across the region still thus far proving elusive. Quantitative easing policy will again have a strong impact on currency markets, though the European Central Bank has expressed its willingness to adopt any method necessary to stimulate growth. Call in now to see how these events affect euro performance and for a live quote on your trading requirements.

US dollar

The US dollar consolidated throughout much of Wednesday ahead of last night's highly anticipated Federal Open Market Committee policy statement. Once made the dollar strengthened across the board as the Chairman of the Federal Reserve stated that they expected to start reducing the programme later this year and hopefully end it by the middle of next year. They also expected interest rates to start rising on 2015. The preface to all this is improving economic conditions in the US and reduced unemployment which is far from certain given the reduction in government expenditure and increase in taxes made earlier this year. Speculation regarding quantitative easing has been fuelling price fluctuation in all markets related to the dollar for months, and we are likely to see more movement throughout the day as markets adjust to Ben Bernanke's more detailed assertions regarding monetary policy going forward. Data released today will include the US home sales and manufacturing index figures. Call Smart today for the latest developments.

Worldwide

Elsewhere, The Australian dollar failed to rebound from recent losses yesterday following a three day slide. With commodity prices continuing to fall, there would seem to be little hope of a recovery for the economy or price levels in the near future with the currency being one of the worst performing this year. Things were better for Australia's antipodean cousin as the New Zealand dollar made gains in the wake of whole milk powder (one of the country's biggest exports) rising in value for the first time in 2 months alongside a narrowing of the nation's current account deficit. Today the Swiss National bank hold a press conference on interest rates and monetary policy: while no change in rates is expected, expect volatile market conditions over the course of the conference. Call your trader today for the latest news and rates for your currency.