GBP EUR & GBP USD Exchange Rates Trade Down On UK Bank Fears

Modified: Tuesday, 30 July 2013 23:43 BST - Written by Toni Johnson

STORY LINK GBP EUR & GBP USD Exchange Rates Trade Down On UK Bank Fears

The Pound leaked support against the other major global currencies throughout yesterday’s session, sending the Pound to euro exchange rate (currency : GBP EUR) and the Pound to US Dollar exchange rate (currency : GBP USD) down to as low as 1.1488 and 1.5255 respectively. There weren’t any specific tier one data releases which hurt the Pound on the day, instead it was more a case of a couple of nagging threats weighing down the UK tender.

The first potential banana skin for the Pound lies in the fairly near future; the Bank of England is set to announce its latest policy decision at midday tomorrow and it would be a monumental surprise if the UK central bank’s monetary policy committee did not opt to maintain its current policy stance, with base rate remaining at its record low level of 0.50% and Quantitative Easing staying at £375bn. However, the great unknown for tomorrow is the tone and content of the Bank’s ‘forward guidance’ statement. Last month’s first ever publication of a forward guidance missive from the BoE caught investors on the back foot and triggered a sustained bout of selling pressure on Sterling with its dire warning that the UK economic recovery is in peril because of greedy retail banks’ insistence on building heavy spreads into their consumer interest rates….. and this brings us on to the second persistent fear facing investors holding GBP-denominated assets…

Clearly the UK retail banking sector was in grave danger of collapse during the post-2007 contraction in the global credit markets. Heavy government assistance allowed the sector to avoid a wholesale meltdown and the general consensus since this time is that British banks are healing their broken balance sheets and returning to normal service. However, yesterday’s session provided a firm rebuttal of this version of the truth. Leading UK High Street Bank Barclays announced that it was set to attempt to mend the hole in its finances with a rights issue totalling almost £6bn for its existing shareholders. The markets did not like what they heard and Barclays shares traded down by over 6% on the day. There could be further losses to come for Sterling of other British retail banks go down the same route as Barclays in the near future.

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