The pound has climbed against the dollar today after the greenback was softened by speculation that the Federal bank will implement further monetary easing.
The climb is predicted to be relatively contained however as many investors believe that the continuing Euro zone crisis will drag heavily on the pound.
“The dollar is generally on a weaker footing today. Expectations of the Federal Reserve easing policy are starting to negatively impact the dollar,” said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.
Today’s release of the UK’s latest construction PMI data was expected to show a decline and add to the already gloomy outlook for the Pound, instead the sector showed continuing expansion. The data released by Markit shows that UK construction came in at 54.4 in May but was slightly down on Aprils 55.8 figures. It’s still above the 50 mark that separates growth from contraction.
Often the data released for the PMI reports show a far more optimistic picture than the Office of National statistics, making it difficult to gauge just how well or bad the UK economy is in fact doing.
“There are clear signs the UK economy is starting to slow down in line with the euro zone and that increases the likelihood of more quantitative easing from the BoE,” Hardman cautioned.
BoE policymakers start their monthly two-day meeting today, with an interest rate decision scheduled for Thursday. The bank is not expected to increase its QE total this month, although more stimuli could come later in the year.
Elsewhere the Euro continues to come under heavy pressure as all eyes are focusing on Spain and the dreadful situation it now finds itself in. Worries abound, that the EU’s fourth largest economy is on the verge of needing a vast bailout. This combined with the Greek elections has seen demand for the pound increase once more.
At a press conference earlier today, the European central bank said that it is likely to maintain its interest rates at the historically low level of 1%, creating surprise from some observers.
Glenn Uniacke from Moneycorp said; “With its direct reference to increased downside risk, heightened uncertainty, flat GDP and a lack of momentum, Mario Draghi’s press conference will have left many onlookers scratching their heads as to why rates were left on hold. While Draghi has a point in that monetary policy cannot make up for a lack of action elsewhere in the banking and political apparatus of Europe, watching and waiting could be a woefully flawed strategy. Knee-jerk policy reactions are less effective than a determined and committed policy stance. Caution and procrastination could be the catalyst of the euro zone’s collapse.”
Procrastination is the name of the game as once again a firm plan has not been revealed. Time is rapidly running out for the Euro leaders, can they take firm and decisive before the Greek elections on June 17th?
Only time will tell.
The Pound to Euro exchange rate is currently trading at 1.23
The Pound to US Dollar exchange rate is currently trading at 1.544
The Euro to Australian Dollar exchange rate is currently trading at 1.264
The Euro to US Dollar exchange rate is currently trading at 1.249
The Euro to Pound exchange rate is currently trading at 0.808
The US Dollar to Japanese Yen exchange rate is currently trading at 79.15
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