USD jumps after launch of Operation Twist

Tom Tong22/Sep/2011Currency Updates

GBP

The pound took a knock yesterday falling to an eight month low against the USD after minutes from last weeks MPC meeting showed the BoE was edging closer to another round of QE.

Adam Posen was the only member of the MPC to vote in favour of QE with the others adopting a wait and see approach, markets are now anticipating QE to happen as early as next month.

In other news the UK’s chief economist, Spencer Dale, stated that UK inflation should fall back at the start of next year. Lower inflation would help the BoE to implement another batch of asset buying.

Finally Government debt now stands at £944.5 billion, with the government borrowing an extra £134 billion over the last 12 months and borrowing a record £16 billion well above the forecast of £13 billion.

Today CBI industrial orders are released with markets expecting the report to come in at -5.

EURO

Yesterday central bankers agreed to come together in an attempt to prevent the European debt crisis from getting worse. The FED, BOJ AND SNB will allow the European banks to borrow in USD over the next 3 months.

Also two days of talks between Greek officials, European authorities and the IMF concluded with the Greeks revealing an ever tougher austerity package. This, in theory, should allow them to receive the next tranche of their bail out money next month – 8€ billion.

The Economic and Financial affairs commission begin their meetings today. We should see more solutions to curb the debt crisis be put forward by European officials. The US Treasury secretary is also set to attend which indicates the US willingness to lend a hand. Furthermore we could see more countries pledging to help Greece. If the meeting goes accordingly then the Euro could be in for more gains.

Today we will also see the release of the Euro zones current account balance, the deficit is expected to decrease from 7.4€ billion to 5.6€ billion.

USD

As expected the FED launched Operation Twist, the plan to sell Treasuries it holds and use the money to purchase ones with longer maturities. Details of the plan and its release led to the USD gaining across the board.

Operation Twist does not pump any new stimulus into the economy its intention is to keep long term interest rates low which should lead to an uptake in mortgage lending and loans to companies. This should therefore stimulate the economy to grow.

Creeping under the radar yesterday was existing home sales which came in better than expected. Sales jumped to an annualized rate of 5.03 million, much higher than forecast.

Today we see the release of the initial jobless claims report, expectations are that the report prints a figure of 419k, which is a marginally lower than the figure from the previous month.

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Written by Tom Tong

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