The Australian Dollar has strengthened today back to 1.4950 against Sterling as concerns in Europe have eased on hopes that the Euro zone may act to lower borrowing costs. Spanish 10 year bonds which hit 7.5% last week have dropped to 6.5% showing that investors are coming back to the market. Italian bonds dropped to 5.96% the lowest since April which again raised confidence on the single currency. UK GDP which dropped to -0.7% last week has sent shock waves through the currency markets and the appetite for Sterling as a safe haven may have changed. Both the UK and ECB release their interest rate decisions on Thursday at 12pm and 1245pm respectively and any cuts for either could signal some volatility. Personally, I think neither will move interest rates and wait to see how recent QE has performed. With the UK having added £50bn last month I think it’ll be some time before the BoE considers any interest rate cut.
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