The Pound jumped to an eight-month high against the dollar during Asian trade as hefty selling pressure on the greenback due to additional monetary easing was exacerbated by Singapore widening the trading band of the Singapore dollar.
The pound has consolidated near to its weakest in almost six months against the euro, however, as concerns that the Bank of England could ease monetary policy further kept the UK currency vulnerable against currencies other than the dollar.
The Dollar has fallen sharply recently due to anticipated Federal Reserve quantitative easing to boost a flagging U.S. economy.
The pound has only managed to gain because of this heightened Dollar weakness. This could be a turning point in global currency terms. Most of the foreign reserves of currencies are held by Asian names and it certainly looks like they are starting to prefer the Euro versus the Dollar.
Sterling has problems of its own due to speculation the Bank of England could also introduce further quantitative easing.
The deputy governor for financial stability Paul Tucker told the Daily Mail newspaper on Thursday that the economy in Britain and globally was yet to find a “sure footing”.
Adam Posen, recently advocated renewing quantitative easing in the UK.
The monetary policy outlook is less clear than in the United States, however, due to high levels of inflation in the UK. These have prompted another BoE policymaker, Andrew Sentance, to vote to raise interest rates, at the moment Sentence hasn’t gathered any support and the recent print of inflation came in lower than expectations which could mean that inflation will drop organically without a rise in interest rates.
Sentance said in a statement yesterday that UK rates need to start rising gradually to counter the risk of above-target inflation becoming entrenched in the economy.
Data released yesterday showed weak UK consumer confidence and a rising number of Britons claiming jobless benefits, raising concerns the labour market is faltering even before drastic public spending cuts kick in. The pound could lose more ground in the short term especially against the stronger currencies, Australian Dollar, Euro and Swiss Franc to name a few.
