Sterling has risen to its highest level in four-months against the US Dollar after the Federal Reserve announced a new round of quantitative easing in its bid to boost the USA’s flagging economy.
The Fed has said that it will introduce an extra $40 billion into the world’s largest economy every month until it saw a strong upswing in the country’s jobs market and signs that America is on the road to a strong recovery. The Pound shot up by 0.2% to $1.6212 its strongest level since early May, with traders saying that the pair had potential to rise further towards the $1.630 mark.
“Sterling has more upside against the dollar after the Fed announced (potentially) unlimited amounts of QE … It should be in for a prolonged period above $1.60,” said Alex Lawson, senior dealer at Moneycorp.
The Pound hasn’t fared well against the Euro after falling to a fresh ten-week low against the single currency. The Euro has remained buoyant as Italian and Spanish ten-year bond yields fell to the 5% range, retreating from the dangerous 7% level. The bold plan announced by the European Central Bank has also seen demand for riskier assets surge dragging down on the
“Bernanke made a very strong case for engaging in quantitative easing,” said Andrew Salter, a strategist in Sydney at ANZ Bank, “We’re going to see the shock-waves from this policy in the Dollar for a foreseeable period of time.”
The Reserves decision has seen the Dollar slump against the majority of its most traded peers. It slumped to a four-month low against the Euro losing 0.8% in the past week, dipped to a three-week low against the Australian Dollar a six-month low against the New Zealand Dollar and a thirteen month slump against the Canadian Dollar.
Concerns over the health of the Japanese economy have seen the currency retreat from a seven-month high against the ‘Greenback’ and has seen it make its longest series of losses against the Euro for three years. With the nation’s rebound from last year’s tsunami-induced contraction waning, Finance Minister Jun Azumi today signalled Japan is prepared to counter gains in the yen that would further curtail exports, and is open to fiscal stimulus.
“It’s highly likely that the Japanese economy will contract in the third quarter and its growth will probably stagnate in the fourth quarter,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management in Tokyo. “Policy stimulus, including an extra budget, will be the only engine to fuel Japan’s growth for the time being.”
Worryingly retail sales fell more than economists had been predicting and industrial production slumped unexpectedly. The surge in demand for riskier currencies also had a negative impact on the currency.
The Pound to Euro exchange rate is currently trading at 1.241
The Pound to US Dollar exchange rate is currently trading at 1.611
The Pound to Australian Dollar exchange rate is currently trading at 1.544
The Euro to US Dollar exchange rate is currently trading at 1.291
The Euro to Pound exchange rate is currently trading at 0.801
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