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Pound Euro slips second day in row

Published: 19 Jun at 11 AM Tags: Pound Sterling, Euro Exchange Rate, Dollar Exchange Rate, Euro Crisis, UK, Inflation,

The pound fell for the second day in a row against both the euro and the US dollar yesterday. On Tuesday, slightly softer than expected UK inflation data reversed the recent gains made by the pound which has seen it zoom on Monday to touch a 19 month high against the euro and a 4 and a half year high against the US dollar. UK inflation is now at a 4 year low.

Yesterday it was the turn of the minutes of the last Bank of England (BoE) policy meeting from the beginning of the month to take their turn in hitting the relative value of the pound. The minutes showed that all 9 members of the Monetary Policy Committee (MPC) of the BoE voted unanimously to hold interest rates unchanged at 0.5%, a level that last changed in March 2009 but of interest, the MPC expressed surprise that markets had under-estimated the chance of a hike later this year.

The 9 members of the MPC also voted to leave the size of the bank’s quantitative easing budget unchanged at £375 billion.

in recent days, there has been speculation that at least one of the members of the committee would have voted for a rise amid concerns about soaring house prices.

The minutes included the following "One indicator that slack had been eroded would be a sustained rise in real wages. There was, however, a risk that growth would not slow in the second half of the year so that, without a corresponding rise in supply, slack would be absorbed more quickly than had previously been expected. In that context, the relatively low probability attached to a Bank Rate increase this year implied by some financial market prices was somewhat surprising."

The MPC also stated, again that it still expected that hikes, when they came, would be gradual and to a level well below their pre-crisis average.

Overnight, the US Federal Reserve made their latest policy announcement with Fed Chair Janet Yellen announcing a further $10 billion a month tapering of its asset purchase program. Predictably, the US dollar weakened across the board following the announcement. Yellen also announced a lowering of their unemployment rate forecast and raised their inflation forecast. Yellen also acknowledged that there would be a considerable period of time between the end of the asset purchase program and the first rate hike.

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