May 2012
The pound showed its resilience this month, at one point hitting its highest trade-weighted level since August 2009. This came despite the UK entering a technical double-dip recession and more hawkish statements from the Bank of England. Indeed, the minutes from the Bank’s last meeting revealed that only one committee member voted for further quantitative easing. There are also growing signs that traders are coming to view sterling as a safe-haven currency, particularly in light of Europe’s ongoing travails. The euro, meanwhile, slumped to a two-year low against the pound after Standards & Poor’s downgraded Spain’s credit rating amid fears over the state of its finances. The single currency fared better against the US dollar, however, hitting a three-week high thanks to improved risk appetite at the tail end of April.
Elsewhere, the Japanese yen was able to shrug off further monetary easing from the country’s central bank, climbing against the euro, pound and US dollar. The BoJ’s move – increasing its Japanese government bond purchase program by ¥10 trillion - had been widely trailed and was priced in by the market. But the Bank of Australia surprised analysts after it cut interest rates by 0.5 percentage points to 3.75% on 1 May. This was more than expected, and caused the Australian dollar to tumble.
