Volatility continues in currency markets

As we enter the last week of September, there is little major data due out around the world likely to affect rates. For the Pound, we have UK mortgage approvals and credit conditions, and consumer confidence. Elsewhere we have US GDP and Eurozone unemployment, but currencies this week are perhaps more likely to react to ongoing debt problems around the world rather than scheduled data releases. Last week, the Bank of England indicated that they are ready to extend Quantitative Easing (QE) perhaps as soon as next week, if UK economic conditions do not improve. The government is also under pressure to change direction on the economy. Former Bank of England committee member Ben Broadbent this morning said in a speech that sterling is likely to remain weak for some time to come, and if there is further QE then we would expect to see significant losses for the Pound. In Europe meanwhile, details of a rescue plan for Greece are emerging, with Greek debt likely to be written down by 50% and the Eurozone bailout fund to be increased to 2 trillion Euros. The plan is likely to take a few weeks to implement, and is crucial to the future of the Euro, so we could see plenty of volatility in Euro rates depending on how the situation develops. The IMF has warned that it may not have enough money to bail out larger economies if the debt crisis were to spread to other countries, so strengthening the Greek banks could be crucial in avoiding financial fallout in the Eurozone. Unfortunately the UK is highly exposed to European debt, so a weaker Euro is often accompanied by a weaker Pound, with little or no net effect on exchange rates, the saga continues...