The Pound Sterling Live - The Heart-Beat of the British Pound

Thursday 13th of September: British Pound Sterling in Strong Advances Against the US Dollar

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Category: The Pound Sterling Live - The Heart-Beat of The British Pound

Published on Thursday, 13 September 2012 07:38

Written by Rob Samson

Thursday 14th of September: The pound had a  strong day against the US dollar which was crippled further by unprecedented action by the US Federal Reserve. However, as our feed below shows, one analyst questions the sustainability of the current levels.

Elsewhere, risk-on currencies such as the euro were well supported.

18:30: US Fed decision is  a winner for markets . . .

The has surged higher against the US dollar as investors welcome the FOMC decision. Indeed, one commentator has described the the move as an economic 'double punch."

The central bank will buy USD 40 bn worth of securities a month, or USD 480 bn a year.

The stand-out outcome is however that the FOMC took the unprecedented step of saying the bond purchases would continue until the labor market shows signs of improvement.

This has pleased the euro which continues its run higher; the pound to euro is 0.21 pct lower at 1.2463.

15:30: Scotiabank say they believe USD is getting overvalued

GBP could face growing pressure against the US dollar in coming months warns Camilla Sutton at Scotiabank.

Scotiabank are GBP bulls, and hence we are taking note. Sutton says:

"We consider ourselves GBP bulls; however the market has pushed the currency beyond our year‐end 1.59 target suggesting that GBP is vulnerable to some downside pressure over the coming months; but for now the near‐term trend is too strong to fight."

The pound euro exchange rate is unchanged on a daily basis, GBP/EUR is at 1.2483. The pound dollar exchange rate is 0.02 pct lower at 1.6104. The pound Australian dollar exchange rate is 0.17 pct up at 1.5419.

13:00: Sterling weakens as we move into the US open

Sterling is now showing signs of weakening as we head into the US open and London afternoon.

GBP/EUR is 0.09 pct down at 1.2477. GBP/USD is 0.01 pct higher at 1.6108. GBP/AUD has slipped to 15426, however still maintaing gains on a day-to-day basis.

The falls come despite some supportive comments from BoE policymaker Ben Broadbent who has suggested the full effectiveness of quantitative easing may have run its course:

"If one hears politicians saying life would be better if we had more monetary easing, well the truth is you always hear that from government. We are in a position where we can judge it for ourselves, but we are limited. Inflation is higher than we'd expect," he told The Northern Echo newspaper.

"I think it's because there has been an independent hit to supply. But it's not possible for monetary policy to solve that on its own," he added.

"I'm not saying it's ineffective. Without some of the measures that have been put in place we'd have had another Great Depression rather than a banking crisis. But it has its limits."

However, as always, the big event still lies ahead - the FOMC decision.

11:30 AM: The strong GBP-USD will cheer UK importers.

GBP is unchanged against the euro at 1.2487. The pound dollar is also unchanged as GBP converts into 1.6110. The pound to Australian dollar rate is 0.33 oct up at 1.5435.

Okay then - so there really isn't much to write home about here! One can almost feel the apprehension though ahead of the big event - the FOMC meeting result, due this evening (no exact time known).

Torrie Callander at Global Reach Partners tells us that the under-pressure US dollar will be welcomed by UK importers:

“A particular indicator of the likelihood of QE3 are comments from committee Chairman Ben Bernanke which suggest that America’s Federal Reserve is poised to act to boost the US economy.

"This has substantially weakened the US Dollar over the last few days, which is welcome news for British businesses that import from the USA and the Far East as they are currently finding their raw materials cheaper now that during the previous six months. If the announcement does not go as the markets expect then there is likely to be a sharp movement in the dollar, affecting Britain’s many importers and exporters."

10:00 AM

We see GBP remains strong against a host of major currency pairs; an aloof trading environment will see investors hold back any major decisions until the FOMC has announces their decision on monetary policy.

But, the pound euro exchange rate (GBP/EUR) is losing ground as the EUR remains the dominant force on the FX space.

However, Richard Driver at Caxton FX is sceptical about GBP/EUR's current loses: "UK data has been on a good run of late and the pound arguably doesn’t deserve its current weakness, but the market’s focus has been elsewhere and this rate has dipped below €1.25."

8:30 AM

GBP is looking strong at 8:30 AM in London, an aloof trading environment will see investors hold back any major decisions until the FOMC has announces their decision on monetary policy.

The pound euro exchange rate is 0.07 pct in the red at 1.2480.

The pound dollar exchange rate is 0.06 pct up at 1.6117.

The pound Australian dollar rate is 0.24 pct higher at 1.5419.

So for the pound today is all about the external environment, and that too is dominated by the Fed.

Michael S. Hanson at Bank of America Merrill Lynch Global Research advises caution as there are a couple of scenario's that could be played out tomorrow:

"Markets have priced in a high probability of further easing by the Fed at the September FOMC meeting: one financial press report suggested a 99% chance of easing was expected by the markets.

"In our view, the case for QE3 by the end of the year is compelling, but the uncertainty around QE is over the timing: do they pull the trigger now or later?

"We believe one of two announcements is likely on September 13: either they formally announce a QE3 program, or they give a strong signal that QE3 is likely in the future."