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Bernanke joins King tolerating more inflation as economies fail to revive

Sterling reversed early losses versus the dollar on Friday as investors booked profits on short positions, but it remained within sight of an eight-month low, dogged by signs Bank of England officials were inching toward more monetary stimulus. The pound rose against a broadly weaker euro which fell in light trade, with traders unconvinced that a meeting of EU finance ministers would result in more aggressive action on the regions debt crisis. This morning we have seen sterling testing Friday’s session lows of $1.5745 with many economists saying that sterling will remain under selling pressure given growing speculation of more QE, which would be sterling-negative as it would flood the market with more pounds, and the ongoing risks to the UK economy from the euro zone debt crisis.
No major data due today.


The Euro dropped against the dollar and yen for a second day after European officials failed to offer a plan to halt the regions debt crisis as Greece struggles to avoid default. The 17-nation currency slid against most of its 16 major peers before European Union and International Monetary Fund officials speak today with Greek Fi-nance Minister Evangelos Venizelos to judge whether his government is eligible for its next aid payment. The euro fell 1.2 percent to $1.3644 this morning from $1.3796in New York on Friday. It also slid against sterling, from Friday morning’s 1.1391 to currently trade at the 1.1500 handle. The IMF and EU are reviewing whether Greece can meet the conditions of its rescue loans and is eligible for the next payment due in October and for a second rescue package. They suspended their assessment earlier this month after discovering a hole on the budget.
No major data due today.


Inflation flashing red may be less of a green light for higher interest rates as global growth falters. Some Federal Reserve policy makers favour keeping their benchmark rate close to zero until price increases reach a level, which some analysts say could be 3 percent. The Bank of England has held its key interest rate at a record low even as UK inflation breached its two percent target for 21 months.  Policy makers such as Fed Chairman Ben Bernanke and Mervyn King may be challenging central-bank orthodoxy to replenish depleted toolkits and sup¬port recoveries at risk of sliding back into recession. Tolerating higher inflation may make long term Treasuries less attractive while supporting stocks and commodity prices. Bernanke and his Federal Open Market Committee gather tomorrow in Washington for a two-day meeting and will issue a statement on Wednesday . Some economists anticipate additional stimulus aimed at reducing long-term borrowing costs and boosting growth.
No major data due today.


• The Australian and New Zealand dollars slumped against their US counterpart on concern the European economy is stalling, reducing demand for currencies linked to global growth.


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GBP/USD                        1.5745

GBP/EUR                        1.1500

EUR/USD                        1.3690

GBP/JPY                         120.90

GBP/AUD                        1.5350

GBP/NZD                         1.9110

GBP/ZAR                         11.870

GBP/CHF                         1.3870

GBP/CAD                        1.5460

GBP/SGD                        1.9800

GBP/THB                         47.800

GBP/HKD                        12.267

red-down; blue-up (snap shot)

These rates are for indication purposes only.


For more information or to get the latest spot rates contact:

John Paul Georgiou

Senior Foreign Exchange Broker

+44 (0) 20 7959 6917      


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