The pound dropped against most of its rivals this morning, especially against the US dollar after the Federal Reserve said it would take steps to boost the growth in the world’s largest economy. The Fed late yesterday said it will rebalance its Treasury holdings to cut longer-term borrowing costs. Sterling also came under pressure yesterday after Bank of England officials said they may need to buy more bonds in order to keep the borrowing costs at current level as economic recovery falters. A weakening global economy and the threat from Europe’s debt crisis have shifted policymakers attention away from inflation risks to avoiding a slide back into recession. Minutes from the September meeting revealed that MPC now see second half growth being considerably weaker than previously expected. Looking ahead to today, the September CBI industrial trends survey is published today at 11, with the expectations for the headline total orders number to fall back to –5 in August. Expect for the pound to remain under pressure on short/medium term as the Bank of England moves closer to policy loosening.
The euro is mixed this morning, remaining flat against the pound, but dropping against the broadly stronger dollar as Federal Reserve decided to intervene in financial markets in order to support fragile economic growth. The single currency still remains under pressure as debt crisis within the region continues to trouble the investors as well as the policymakers. Looking ahead to today Eurozone PMI Manufacturing figures headline the economic calendar, with the expectations for the figures to have declined further in September.
The dollar gained across the board during the overnight trade after Federal Reserve decided to take additional actions in order to keep the economy from sliding into another recession. The central bank will extend the average maturities of its existing Treasuries by purchasing 400 billion dollars of long-term debt while selling an equal amount of shorter-term securities. After the Fed’s announcement the stock markets around the globe tumbled the most in a month. Analysts believe that Fed’s action will support the overall US economy but are not convinced that’s enough to get the recovery back on track. Looking ahead to today, the index of US leading indictors headlines the economic calendar. The Conference Board gauge of the outlook for the next tree to six months is expected to have climbed only by 0.1% in August, after rising 0.5% in July. Also scheduled for today is the initial jobless claims for last week, with the expectations for the figures to have dropped for the first time since mid August.
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