Pound Euro Exchange Rate Steady In Spite Of Spanish Debt Downgrade, Fed?s Downbeat Beige Book Release Could Mean More QE

Published: Thursday, 11 October 2012 09:00 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate Steady In Spite Of Spanish Debt Downgrade, Fed?s Downbeat Beige Book Release Could Mean More QE

Last night’s release of the latest version of the Federal Reserve’s Beige Book underlined the extensive underlying problems which still face the world’s largest economy. The official document from America’s central bank found that the US economy had expanded ‘modestly’ since the start of September. Surprisingly, this uptick in activity was attributed to a marked improvement in the US housing market, which has languished in the doldrums since 2007’s global credit crunch. The report also observed that conditions in the American labour market remained ‘flat’ and that domestic consumer spending remained weak. The Beige Book is viewed by analysts as a good determinant of future US monetary policy; yesterday’s report will do little to quell rumours that the Fed is considering an extension to its $40bn per calendar month Quantitative Easing programme early in the new year. While these market whispers persist, it will be difficult for the US Dollar to garner sustained support in the currency market. This means that the GBP USD exchange rate may experience some difficulty in breaking down through the key 1.6000 level to hold in the 1.50s once more.

Elsewhere, the overnight session was significant for two risk events in particular; Australian jobs data and another Spanish debt downgrade. The latest set of Australian labour market figures revealed that a healthy 14,500 new jobs had been created in the Antipodean economy last month. This was well ahead of analysts expectations of a 5,000 increase. However, the Australian jobs figures also showed that the overall level of domestic unemployment had increased from 5.1% in August to 5.4% in September. This disappointing unemployment rate reading didn’t stop the Australian Dollar gaining against Sterling during the Asian session – the GBP AUD exchange rate dipped by a third of a percentage point overnight and currently stands at 1.5583.

Meanwhile, leading credit ratings agency Standard & Poor’s has downgraded Spain’s national debt to BBB-. This is one notch above ‘junk’ status. The move surprised no-one, given the parlous state of the Iberian nation’s economy. The GBP EUR exchange rate has been largely unaffected by the development and remains in the middle part of the 1.24s, close to where it ended the day yesterday.

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