Currency Exchange News: The Euro Remains Under Renewed Pressure

The Bank of England’s (BoE) voted yesterday to keep the key interest rate and level of asset purchases in the UK unchanged for November at 0.5% and £375 billion respectively.

UK interest rates have now remained at their historic low of 0.5% for 44 straight months dating back to March 2009.

The asset purchase program, commonly known as quantitative easing (QE) was also maintained at £375 billion despite the poor data out of the services and manufacturing sectors of the UK economy in the last few weeks.

Analyst Simon Hayes from Barclays Research said “Although this was in line with expectations, it is only a few weeks since there was a widespread view that QE would be increased, and it is likely that the committee gave active consideration to an expansion.”

The pound was boosted by the vote and traded at a 5 week high against the euro yesterday afternoon.

The European Central Bank (ECB) also decided yesterday to keep policy in check for at least another month but euro zone leaders face some tense negotiations in the weeks ahead over Greece’s €174 billion bailout after international lenders failed to bridge differences on how to reduce the Greek debt level, pushing Greece perilously close to defaulting on a €5 billion debt payment due next week. Officials had hoped to finalise the new programme, which extends Greece’s rescue two years to 2016, at a meeting of euro zone finance ministers in Brussels on Monday. That would free up a long-delayed €31.3 billion aid payment desperately sought by the Greek government.

With worse than expected data out this week from the euro zone’s two biggest economies, Germany and France, the storm clouds seem to be gathering again over the single currency.

Meanwhile in the US, a report from the Congressional Budget Office warned that unless Congress reaches an agreement over the so called ‘fiscal cliff’, then a recession will likely take place in the first half of 2013. This turned the financial markets negative and into ‘risk aversion’ with the New York bourses registering sharp falls for the second day in a row.

The dollar, by tradition a ‘safe haven’ currency benefited from the increase in ‘risk aversion’ and made steady gains against both the pound and the euro.

Money transfers to Germany:-

With real signs that the prolonged euro zone sovereign debt crisis is finally catching up with continental Europe’s largest economy, the pound finished yesterday at its best trading rate against the euro for over 5 weeks.

However, we will need to wait until Wednesday 21 November to obtain the minutes of yesterday’s Bank of England meeting and thus how the nine members of the Monetary Policy Committee (MPC) voted which will give us a hint as to policy in the months to come. With some analysts also predicting that the UK faces the real possibility of losing its prized AAA credit rating in the bond markets, clients with a euro requirement may wish to consider locking into the rates currently available.