Pound to Euro Exchange Rate Forecast @ 1.11
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
It would be a mistake to doubt the Bank of England's ability to push yields, and therefore the Pound Sterling, even lower argue Morgan Stanley.
The Pound is threatening to break below its post-referendum lows as we enter a new phase of British Pound weakness - one that is driven by the actions of the Bank of England on UK bond markets.
The Bank has pledged to buy up to £60BN worth of UK government bonds (Gilts) from the markets over the next six months in order to try and force down the yield paid by those bonds.
The effectiveness of these reverse-auctions will ultimately decide how low the Pound can go.
A further £10BN worth of corporate debt is to be purchased in order to directly force down the borrowing costs at companies that are seeking to borrow in excess of £100BN from the markets.
The flood of fresh Pounds onto the market will ultimately devalue the currency on a unit basis.
We heard that on Monday bond buy-backs had forced ten-year and five-year yields to hit new record lows of 0.603 percent and 0.152 percent respectively.
The successful move was repeated on Wednesday the 10th when the Bank bought £1.17BN worth of Gilts with maturities of between 2023 and 2030.
The reverse-auction was oversubscribed 4.7 times.
This has opened the gap between the yields paid by Eurozone and US bonds on the one hand, and UK bonds on the other.
The opening of this gap against UK yields provides the downforce acting on the value of the Pound as foreign investors opt against investing in UK assets.
When the effectiveness of this policy of lowering yields through buy-backs is questioned, as was the case on Wednesday the 10th of August when the Bank announced it was unable to find enough sellers of bonds, the Pound moved higher alongside improved yields.
Therefore we will continue to watch the success of the reverse-auctions.
The Bank itself will be happy with the falling in yields as it lowers borrowing costs while the weaker currency will prove helpful in stimulating exports.
In their August Inflation Report the Bank also said the weaker exchange rate will boost the country's income from the return on foreign-owned assets which have risen in Sterling-terms.
read more