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Pound Money Transfer News: Sterling Receives a Boost

Published: 2 Aug at 10 AM Tags: Pound Sterling, Euro Exchange Rate, Euro Crisis, UK, Economy, Inflation,

The pound received an unexpected boost yesterday after the Bank of England's Monetary Policy Committee (MPC) decided to hold off from an announcement on the much vaunted ‘forward guidance’ policy expected to be announced yesterday.

As expected, the MPC left UK interest rates unchanged at 0.5%, a level that has been in place since March 2009 and kept the size of its £375 billion of monetary stimulus it is providing through its quantitative easing programme (QE) unchanged.

The surprise was that unlike last month's interest rate announcement, the first under the new Bank governor, Mark Carney, the MPC made no further comment on the ‘forward guidance’ policy.

The MPC is now expected to make an announcement next week on the policy of "forward guidance". Forward guidance is supposed to reassure the markets as to future interest rate moves and helps investors and households to plan ahead.

Next week also brings the release of the Bank's keenly watched Quarterly Inflation Report.

Yesterday also saw a further good economic data release for the British economy with a report showing that the economic recovery in the manufacturing sector gained momentum in July with data showing that growth rates for production and new orders hit their highest level since February 2011. The report, the Markit/CIPS purchasing Managers' Index rose from a reading of 52.9 in June to 54.6 in July. Any reading above the 50 level signals expansion.

Meanwhile the Nationwide building society reported that UK house prices recorded their biggest year-on-year increase for nearly three years in July with an annual price increase of 3.9% which means the average home in the UK now ‘costs’ £170,825.

The Nationwide commented that UK average house prices rose by 0.8% compared with June. It described the increase as "robust" but said that housing remained in relatively short supply and rental costs continue to rise.

Yesterday also saw the latest policy announcement from the European Central Bank (ECB). Its president, Mario Draghi said there are some tentative signs of an economic recovery in the euro zone stating that there may be "gradual recovery in economic activity in the remaining part of the year and in 2014".

The ECB once again kept interest rates at their historic low level of 0.5% and Mr. Draghi again said that interest rates will remain at low levels for the foreseeable future.

Today sees the release of the key employment data from the US which is expected to show a further robust pick-up after the US ISM manufacturing index jumped to a two-year high and economic growth accelerating strongly in the second quarter of this year.

This has fuelled risk appetite in the markets with strong gains throughout worldwide stock markets. In New York, both the Dow Jones and S&P 500 finished at new all-time highs last night.

Today's official employment release is expected to see a 185,000 gain in non-farm payrolls in the US in July, slightly below the 195,000 increase in June. However, the unemployment rate is predicted to fall from 7.6% to 7.5%.

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