Pound to Euro Exchange Rate Forecast To Tumble If BoE Increases QE

Modified: Wednesday, 3 July 2013 20:18 BST - Written by David Woodsmith

STORY LINK Pound to Euro Exchange Rate Forecast To Tumble If BoE Increases QE

A brace of better than anticipated US labour market figures, published yesterday afternoon, have raised expectations of a strong showing from tomorrow’s US Non-Farm Payroll figure for June. The latest ADP Employment Change figure showed at a higher than anticipated 188,000. Analysts had been anticipating a print of 160,000, so the release served to heighten hopes amongst investors holding US Dollar-denominated assets that Friday’s key job figure in the States might be a decent one. The latest weekly US Initial Jobless Claims data, released at the same time as the ADP Employment Change figure, also came out firmer than expected adding to the positive sentiment ahead of the NFP print.

The Federal Reserve upped the stakes regarding American labour market data releases when it revealed in May that any tapering of its controversial Quantitative Easing programme would be contingent upon a discernible improvement in the US jobs market. If tomorrow’s release points to such a firming of this key sector of the American economy, then expect the US Dollar to come in for a sustained bout of support which could send the Pound to US Dollar exchange rate (currency : GBP USD) back down through the psychologically important 1.5000 level for the first time in several weeks.

The Pound was well bid against several of the other major currencies, including the Euro, yesterday thanks largely to a strong showing from the latest Purchasing Managers Index Services sector survey. The gauge of this vital sector of Britain’s economy thrashed expectations to print at 56.9 – a stellar improvement from the previous month’s showing of 54.9. Gains for Sterling on the day would surely have been more pronounced were it not for concerns regarding today’s Bank of England monetary policy committee decision. A surprise increase to the UK’s QE programme at new BoE Governor Mark Carney’s first meeting cannot be ruled out. Such an announcement would send the Pound Sterling tumbling lower across the board.

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