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Federal Reserve boosts flow of dollars to European Central Bank

Sterling just went along for the ride yesterday as coordinated central bank intervention overtook individual currency movements on its own macro economics. The pound started the day out on a negative tone as worse than expected retails sales figures for August came in at 0.2% for the month, showing volume of sales for the month was no higher than it was a year ago. Not very inspiring for the UK currency so against the majors we just saw a gradual slide down. Then came the bombshell as fresh liquidity in currency markets boosted the euro sharply and sent the dollar spiralling down as the currency markets pushed EUR/USD up, taking GBP/USD with it. Cable gained  over one cent on the back of action by five central banks, including the BoE coordinating to ease the liquidity of funds in EUR + USD. The downside to this was seen in GBP/EUR as the single currency recovered, pushing the pound down to below the 1.14 handle.
No major data. Speaker: UK Chancellor George Osborne.


The euro was set for its first weekly gain against the yen this month on prospects costs for dollar funding will drop after the ECB said it will lend the US currency to euro-area banks. The 17 nation currency rose against all of its major counterparts this week as euro-area finance ministers prepare to meet today. The ECB’s liquidity plan boosts the euro and European bank shares. The ECB said it will lend dollars to banks in the eurozone in a series of three month loans. The Frankfurt based organisation said it will coordinate with the Federal Reserve and other central banks to conduct three separate dollar liquidity operations to ensure lenders have enough of the currency through to the end of the year. The three month loans are in addition to the banks regular seven-day dollar offerings. An impressive one and a half cents was gained in EUR/USD as we saw an intra-day high of $1.3935 reached. Against the pound there were gains of 0.7% as EUR/GBP hit an intra-day high of 0.8789.
Data: Day 1 of ECOFIN Meetings. 10.00: EUR Trade Balance 1.7B from –1.6B.


Dollar: Worried that a mounting debt crises in Europe could trip up the global economy, the Federal Reserve opened its vault on Thursday to the central banks of other countries in an effort to head off a crippling shortage of dollars. The main recipient of the Fed’s money was the ECB, which in turn extended dollar loans to banks in the nations that use the euro currency. These banks do significant business in dollars, for instance making loans to customers operating around the world, and have been finding it harder to raise dollars from anxious investors. The initiative, which entails temporarily swapping dollars for foreign currencies, also involves the central banks of Britain, Switzerland and Japan, underlining the extent of international concern about Europe's deteriorating financial system. Global stock markets surged on the news with the S + P rising 1.7%, leading to the dollar to be sold off as risk sentiment rallied. The Philly Fed came in lower than estimated (-17.5 v –15.00expected) but was shrugged off in the risk on trade. Data 14.00 TIC Long-Term Purchases 31.3B from 3.7B. 14.55: Prelim UoM Consumer Sentiment 57.3 from 55.7.


• Pimco, one of the worlds biggest asset management firms, is betting that the euro could drop to $1.20 versus the dollar over the next three to six months, shrugging off its recent rally. Pimco’s position would have the dollar rising more than 10% from its current $1.38 level to the euro, which strengthened sharply yesterday on the central bank intervention.


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GBP/USD                        1.5761

GBP/EUR                        1.1419

EUR/USD                        1.3804

GBP/JPY                         121.00

GBP/AUD                        1.5244

GBP/NZD                         1.9071

GBP/ZAR                         11.687

GBP/CHF                         1.3766

GBP/CAD                        1.5519

GBP/SGD                        1.9550

GBP/THB                         47.86

GBP/HKD                        12.279

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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