Sterling is giving up yesterday’s gains against the euro as it almost drops to an intraday low below €1.15.
Despite better than expected data from the UK services sector (August’s figure was a 16 month low), the pound is still struggling as investors look to pick up the single currency on last sessions dip. The EU currency is also being propped up by its performance against the US dollar with the market now as short on the greenback as it has been since 2008. Consequently, the pound is up for the third straight day against the greenback, hitting a high above $1.59 due to the ongoing speculation about the Fed’s next policy meeting.
In other news, over night, the Bank of Japan’s decision to lower their already nonexistent interest rate came as a shock taking the edge of the yen’s recent strength. On the same Pacific note, the Reserve Bank of Australia decided against raising interest rates to 4.75%. However, their 4.5% rate is still by far the most attractive in the G20 and the aussie’s sharp pull back today against its peers will present a good buying opportunity.
Keeping to the central bank theme, both the ECB and BoE are due to announce policy decisions on Thursday. The fear for sterling is that UK policymakers reveal a three way split, with a vote this month in favour of quantitative easing. Such an outcome is unlikely to sit well for the pound….
Tom Hampton
Analyst – Caxton FX
