Sterling hit a two-month high against the US dollar this morning of $1.5937.
The pound was up again this morning versus a broadly weaker dollar as the greenback hit an eight and a half month low against a basket of currencies. The UK currency however soon gave up these gains remaining under pressure on concerns that further monetary easing may be required to support the UK economy. Tomorrow morning the Bank of England is expected to hold interest rates steady at 0.5%, however, it could be torn by a three way split. Adam Posen has set out his stance in calling for a fresh round of quantitative easing, whereas Andrew Sentence is likely to once again support a 0.25% rise in the interest rate. This split in opinion is indicative of the state of the UK and the global recovery.
The continued threat of QE in the UK is also leading sterling lower against the euro. Despite Moody’s downgrading Ireland’s credit rating today, the single currency is continuing to soar as investors shed dollar positions. The price is now at fresh 4 month lows, quickly heading toward €1.14.
In other news, the continual flow of capital from the ‘old world,’ where growth has stalled, to the new world has led to the South African rand hitting a two and a half year high against the US dollar. All this despite the country grinding to a halt after the world cup when strikes threatened to collapse the economy.
Tom Hampton
Analyst - Caxton FX
