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Kristin Forbes low interest rates damaging helps the pound

Sterling enjoyed a strong end to last week, and appears to have started this one on the front foot against most of its major counterparts, despite a relatively benign economic calendar in recent days. Kristin Forbes, over the weekend made interesting comments about the damaging prospect of long term low interest rates, yet the Bank of England committee member felt her own argument lacked sufficient weight just yet to raise rates a little over a week ago. Tomorrow’s series of inflation figures is the highlight of the domestic week – Carney has just warned that we could drop into negative territory again but even with that forewarning the damage would still be felt for the pound.
Friday’s data releases in the US were largely upbeat, with PPI and industrial production comfortably beating expectations. However, the blemish was the consumer sentiment reading from the University of Michigan which fell rather than rising as most economist had anticipated. China’s decision to devalue its currency last week had drawn focus away from US data points, however, the numbers from the last few days have done little to dissuade most commentators that the rate hike in September is still on the cards. A smattering of second tier releases this afternoon allows for a quiet start to the week before housing and inflation data are released on Tuesday and Wednesday respectively.
The euro had a surprisingly positive start to the week just gone, breaking through key resistance levels against the dollar and testing 6-month technical levels against the pound. However, as testament to the way the single currency has traded throughout much of this year, the follow through was distinctly lacking. The degree of movement was significant but ultimately, with a diverging monetary policy outlook from the UK and US, it remains the case that any moves such as this are opportunities for traders to short the currency once again. True to form, both the GBPEUR and EURUSD are currently roughly 1% from last week’s extremities. Euro trade balance kicks things off this morning but unlikely to cause much of a stir, while the string of PMI figures at the tail end of the week seem like a long way off.


City AM- Surprise drop in top dog pay.
Telegraph- Quarter of bankers still under pressure to mis-sell.
Guardian- UK inflation forecast to remain at 0%.


Pound Sterling (GBP), Euro Currency (EUR), US Dollar (USD) exchange rates commentary is provided by Argentex (Ag-Fx.com)

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