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Gold prices edge higher as traders track weaker dollar

Market sentiment was dampened as economic data released surprised to the downside. Moreover, investors were concerned as policymakers failed to reach a deal over the US debt-ceiling debate. Wall Street plunged with the DJIA and the S&P 500 indices losing -0.43% and -0.26% respectively.

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Risk Appetite Damped on Concerns over US Debt Ceiling Standoff

UK sterling’s currency exchange rate against majors received a shot in the arm this week as the Bank of England (BOE) decided to keep interest rates on hold at historic lows (which now match euro zone rates) and in turn opting for no more QE, well, as least for the moment.

Latest UK Sterling Exchange Rates

As of 07:55 GMT today, one pound UK sterling bought 1.18380 euro (0.04 percent lower) and against the US dollar the rate was $1.54470 (0.02 percent lower).

Bank of England Meeting

Thursday’s decision on interest rates and QE from the Bank of England followed better than expected 0.3pc first quarter GDP growth in the UK and encouraging PMI services, manufacturing and construction data in April. Economists were not surprised by the outcome of the meeting, which is Sir Mervyn King’s penultimate before he hands over to new governor Mark Carney in July.

The MPC has already injected £375billion of liquidity into the UK economy through purchases of mainly Government bonds from banks, otherwise known as QE. Markets have been buoyed in recent days by monetary stimulus in the shape of interest rate cuts and QE by other central banks, with the Dow Jones Industrial Index soaring above 15,000 points for the first time and the FTSE 100 index reaching levels not seen since December 2007.

Those on the BOE committee who voted against more QE last time around feared that it might exacerbate rising inflation and prompt renewed weakness in UK sterling’s exchange rate.

G7 Meeting in London

G7 finance ministers and central bank governors from Canada, France, Germany, Italy, Japan, UK, and the US are meeting in London today. They are expected to discuss whether central banks can do more to encourage a fragile global recovery at the two day event.

Germany’s finance minister Wolfgang Schaeuble yesterday warned that central bank stimulus was causing critical problems and said countries must work together to reduce global liquidity.

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UK sterling gets a shot on the arm as BOE holds on rates and QE

Financial markets slipped on weaker-than-expected US economic data and a more dovish Fed. Wall Street retreated with the DJIA and the S&P 500 indices losing -0.94% and -0.93% respectively. In the commodity sector, crude oil prices slumped as US inventory surprisingly increased.

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Sentiment Weakened on Dovish FOMC Statement