Budget-day in the UK has already seen some significant Sterling movement with the Bank of England minutes this morning causing the Pound to depreciate in value. With no new policy members voting for a rate hike, the minutes did not suggest that an interest rate rise will occur any earlier than already thought. This has sapped some of the gains made by the Pound yesterday on the back of the soaring inflation figure at 4.4 percent. The UK budget this afternoon will be watched by currency markets in order for them to interpret how well the economic recovery is likely to continue.

Pound Sterling – UK Markets

Following a surge in Sterling yesterday bought about by the soaring inflation levels up to 4.4.percent, the Bank of England minutes have arrived this morning to dampen Sterling and send it lower as they revealed that there have been no further members voting for a rate hike. The minutes last month helped Sterling gain as they revealed an extra member had joined the rate hawks in voting for a rise - but this month there were no new additions and the same three members voted for a rise. The timing for the predicted 0.25 rise was also termed as likely to occur in ‘the middle of the year’ whereas last month the minutes had been a little more promising suggesting the hike would come in ‘early summer’.

The fact that most members are waiting for more sustained growth figures has not helped the currency as we also encounter the UK budget today.

US Dollar – US Markets

The Dollar has been gaining back on the Pound so far this morning following the UK Bank of England minutes but dropping against the Euro although the movement has been volatile. With so much focus on European and UK interest rates, as well as debt issues in Europe and the UK budget this afternoon the Dollar is really responding to broader themes meaning that new home sales data this afternoon is likely to be overlooked.

Euro – European Markets

The Euro has come under pressure as both Ireland and Portugal have moved back into the spotlight for struggling to pay off their debt. A vote on austerity measures in Portugal today is making the Euro particularly vulnerable on speculation that the measures will not be passed which may then subsequently incite a resignation from the Portuguese Prime Minister. Whilst the possibility that European interest rates could rise as early as next month has been fuelling the Euro, lingering issues over debt are coming back to the fore. As well as the situation in Portugal, rumours are circulating that Allied Irish Banks are planning to miss a coupon payment struggling to have enough funds.

Other Currencies – Highlights

The Swiss Franc has risen alongside the Yen as a safe-haven with ongoing uncertainty about radiation in Japan leaking from a damaged nuclear plant.

The safe haven currencies are also strengthening in response to the alliance-led planned attacks on Libyan ground forces.

Sterling is starting the week out on the wrong foot, sitting around 1.19 against the Euro and 1.55 against the US Dollar. Despite rising against the US Dollar last week for the first time in six weeks, news over the weekend had already arrived to dampen UK markets before the week had even begun. Dropping house prices made some of the Monday morning front pages thanks to the Rightmove data over the weekend. This was doubled up by figures from the Bank of England this morning showing a fall in mortgage approvals. This weakness in the UK housing markets is for many the rot at the centre of the slowing UK economy. The fragility in the economy is only likely to come even further under scrutiny with public finance data tomorrow and then the Bank of England minutes from the last rate meeting on Friday. Inflation is still well above target and there is mounting concern over the cuts that Chancellor of the Exchequer George Osborne will be detailing on 20th October. It may therefore be a volatile week for the Pound with a lot of new information in the first half of the week.

The Euro is bearing up fairly well given the week opens following speculation over the state of Ireland’s finances last week and whether they may require help from the International Monetary Fund. Barclays Capital issued a report which suggested Ireland may require external assistance due to large losses in the financial sector. However both Ireland and the International Monetary Fund have sought to calm nerves saying that this is not foreseeable. Stress tests on Greek banks have been delayed until the end of October to allow the country’s capital raising programme to be assessed. The weekly calendar for news from the Eurozone begins with consumer confidence and industrial orders on Wednesday reflecting conditions in the European manufacturing sector. Should investors become risk averse this week on any more signs of heavy global slow down, the Euro may become vulnerable.

The US Dollar remains at around a five week low against the Euro. Consumer sentiment towards the economy fell to its lowest level on Friday continuing the flow of negative news on the situation in the US. Tomorrow’s Federal Reserve meeting is expected to result in the ongoing hold of low interest rates although there is uncertainty over whether any further easing or stimulus measures will be taken to shore up the economy. There are further US Dollar releases on everything including housing data and unemployment rates spread throughout the week which may bring movement to all major currencies as US data tends to influence investor opinion the global economy as a whole.

Nigel Hodges www.currencysolutions.com

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