Daily currency report

Both the European Central Bank and Bank of England opted to leave monetary policy unchanged. A shift in the monetary policy outlook between the eurozone and the US is helping to lift the dollar. Staff projections for inflation and growth were revised lower and suggest that the European Central Bank may need to consider lowering interest rates, which had not been priced into markets. On the other side of the Atlantic, Fed’s Ben Bernanke failed to make mention of the need for further quantitative easing measures in a speech he gave, leading investors to the conclusion that QE3 might not be around the corner.

Sterling

The Bank of England announced that it would leave interest rates as well as its quantitative easing program unchanged, which was in line with market forecasts and had little impact on sterling trade. Sterling made strong advances against the euro; nearly touching one month highs after the ECB indicated that it may need to cut interest rates.

US dollar

President Barack Obama presented the American Jobs Act to a rare joint session of congress in an effort to find a way to jump start the jobs market. The cost of the program was put at $447 billion that would come in the form of tax cuts and more spending. Mr Obama said that he wanted to extend the unemployment insurance, modernise schools and invest in transportation infrastructure. Just prior to his speech, Mr Bernanke failed to give any indication that the central bank would increase its quantitative easing program. The dollar strengthened in reaction to the omission.

Euro

The comments by ECB’s Jean-Claude Trichet during the press conference helped to weaken the euro. Inflation risks just last month were said to be ‘to the upside’ while now they were described as “balanced”. Additionally, staff projections for inflation show downward revisions to the figure in two years time. The revision came in below the two per cent mark and some suggest the ECB is now in a rate cutting bias, which had not been factored into markets.

Japanese yen

The Japanese yen has strengthened as investors at home grow more uncertain about the outlook for growth. Second quarter GDP figures were weaker than originally reported.

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