Good
morning. The pound fell sharply against a basket of currencies on Friday
morning as the market reacted to Bank of England (BoE) Chief Mervyn King’s speech
on Thursday evening. Before the announcement pound dollar rates were sitting at
$1.5560 but as the UK
markets opened this morning there was sharp decline as cable (GBP/USD cross)
fell back to $1.5475.
At 8pm
yesterday evening Sir Mervyn King announced the BoE will launch two new
stimulus packages in response to the UK and Global economic outlook. The
BoE and government will make billions of pounds of cheap credit available to
banks which they can lend to companies. This has weakened the value of sterling
making it cheaper to purchase which is why we have seen a drop in rates across
the board.
The move
gives the UK
banks access to money which will allow them to cope with “exceptional market
stresses” and according to Chancellor George Osborne these new measures should “inject
confidence”. His comments seem to be correct as a number of banks saw a rise in
share prices, with one bank seeing a jump of nearly 4%.
In his
speech Sir Mervyn said ''The other effect of the euro-area crisis has been to
create a large black cloud of uncertainty hanging over our economy too''
With the
Greek election result due over the weekend we could see rates move in either
direction. No one is sure which way the vote will go and if Greece intends
to stay in the Euro-zone. The move by the Bank of England could be a way of
protecting the UK
banks and economy from the knock on effects of the weekend’s results.
Over the
past couple of weeks we have seen some major movements for the pound/dollar
cross, in the space of a few weeks we saw rates drop by nearly 6.5%, as issues
in the Euro-zone meant investors headed back to the safe haven U.S dollar. If
the weekend results indicate anything but positive news it is likely we could
see rates fall back even further.
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