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Pound Slides as BOE Cuts Rate

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British pound

The pound fell the most in more than four weeks after the Bank of England cut interest rates for the first time since March 2009, part of a suite of stimulus measures to help boost the economy after the U.K.’s vote to leave the European Union in June.

Sterling dropped at least 1.4 percent against all of its 16 major peers after the nine-member Monetary Policy Committee voted unanimously to lower the benchmark rate by 25 basis points to a record-low 0.25 percent. Officials led by Governor Mark Carney increased the central bank’s asset-purchase target for the first time in four years, raising the target by 60 billion pounds ($79 billion) to 435 billion pounds. U.K. government bonds jumped, pushing the 10-year gilt yield to a record low.

The MPC also said it will buy as much as 10 billion pounds of corporate bonds in the next 18 months, though there was disagreement among the nine members about whether quantitative easing was warranted at this stage. Options trading showed the pound could fall further in coming months.

Brexit ‘Headwinds’

“The BOE clearly is willing to provide an array of stimulus policies because it thinks that the U.K. economy is going to face substantial headwinds from Brexit,” said Peter Frank, global head of Group-of-10 currency strategy at Banco Bilbao Vizcaya Argentaria SA in London. “I think the BOE and the government is keen to see a much weaker pound.”

The pound fell 1.5 percent to $1.3126 as of 4:02 p.m. London time, the steepest decline since July 5, a day before it touched a 31-year low of $1.2798. Sterling weakened 1.4 percent to 84.85 pence per euro.

The decision to cut borrowing costs was forecast by all but two of 52 economists surveyed by Bloomberg, with the majority predicting a 25 basis-point reduction. Before the announcement, swaps pricing showed a 100 percent chance of a cut.
Economists in a separate survey were less certain about the possibility of the BOE announcing further stimulus measures, with 23 of 44 analysts forecasting no change to the the central bank’s quantitative-easing plan.

‘Further Easing’

“We feel this is an appropriate first step and anticipate further easing from the MPC in the coming months as the growth outlook becomes clearer,” said David Zahn, London-based head of European fixed income at Franklin Templeton Investment Management Ltd. “This is good news as it is supportive of the bond market. However, in general this will be slightly bearish for the pound.”

The pound has declined almost 12 percent against the dollar since the nation opted for Brexit, weakening for a third consecutive month in July, as economic consequences of the decision began to surface.

Derivatives trading suggested the pound will weaken further. The premium for three-month options granting the right to sell the currency against the dollar relative to those for buying rose 16 basis points to 1.07 percentage points. That’s still lower than the level on the referendum day when it was 4.13 percentage points.

On a longer-term horizon however, that concern was less pronounced. The premium for 12-month options was little changed at 1.635 percentage points.

Benchmark 10-year gilt yields dropped 16 basis points, or 0.16 percentage point, to 0.64 percent, having earlier touched 0.634 percent. The 2 percent bond due in September 2025 rose 1.505, or 15.05 pounds per 1,000-pound face amount, to 111.985. The nation’s two-year gilt yield fell eight basis points to 0.12 percent, after reaching 0.07 percent, the lowest since July 1.

“So the BOE delivered a dovish surprise as regards QE measures,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “Only roughly half the market probably had expected an increase of QE, probably less the introduction of corporate bonds. The BOE wants to set a clear signal that it has switched into crisis mode.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Naira

Naira Opens the Week at N413.30 Against U.S Dollar

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Naira Exchange Rates - Investors King

The Nigerian Naira opened better than expected against the United States Dollar at the Investors and Exporters forex window on Monday following a record decline on Friday.

The local currency opened at N413.30 against the U.S Dollar on Monday, representing N1.6 or 0.39 percent improvement when compared to Friday’s closing rate of N414.90.

On Friday, investors turnover at the Investors and Exporters forex window stood at $193.59 million. While Naira spot rate dropped to as low as N415 against the United States Dollar and forward rate of the local current hits N432.05 to a greenback.

However, at the unregulated parallel market, the Naira remained at over N550 to a United States Dollar on Monday, according to operators.

Despite the Central Bank of Nigeria stopping the sale of forex to bureau de change operators and forcing media companies from publishing black market rates, the naira remained under pressure and trading at record lows across key foreign exchange markets.

Efforts to curb further decline and boost the local currency’s value are yet to crystalise as chronic scarcity due to years of weak foreign revenue and over-reliance on importation continues to weigh on Naira outlook.

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Naira

Naira Gained Slightly at I&E Forex Window to N412.81/$US

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Naira - Investors King

Despite the Nigerian Naira trading at a record-low across the nation’s unregulated black market, the embattled currency opened slightly higher at N412.81 to a United States Dollar on Monday at the Investors and Exporters Forex Window, representing an increase of 0.08 percent when compared to the N412.88 it closed on Friday.

The improvement in Naira value was after the Central Bank of Nigeria (CBN) directed all depoisit money banks operating in the country to freeze bank accounts linked to Oniwinde Olusegun Adedotun, the founder of www.abokfx.com, a forex rate publishing platform.

Godwin Emefiele, the Governor, CBN had blamed black market and bureau de change operators for the constant plunge in Naira value against its global counterparts and insisted that forex rates remained the apex bank stipulated rates and not the unregulated rates imposed by speculators and hoarders and published to the public by Abokifx and other business platforms.

There was a particular time I asked our colleagues to call the so-called owner of abokiFX, that we want to understand his model and how he came about advertising those rate, we find him as someone, a Nigerian who lives in England and conducts this nefarious activity on our economy.

“It is economic sabotage and we will pursue him, wherever he is, we will report him to international security agencies, we will track him, Mr Oniwinde, we will find you, because we cannot allow you to continue to conduct an illegal activity that kills our economy.” Emefiele said.

The governor further stated that the website was set up primarily manipulate and speculate forex rates. He said “they get naira loans, use to purchase dollars, take a position, change the rate over a given period, sell the dollars they purchased and make a profit, this is completely illegal, unacceptable and we will pursue them.”

On Friday, the last time Abokifx published unregulated forex rates, Naira was qouted at N570 to a United States Dollar while the British Pound and the Euro were quoted at N770 and N655, respectively.

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Dollar

U.S Dollar Jumps to Three Weeks High on Better Than Expected Retail Sales

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Dollar Cryptocurrency - Investors King

The United States Dollar rose to a three-week high after data from the Commerce Department showed that the U.S retail sales rebounded in the month of August despite falling consumer confidence.

The US Dollar Index rose to 93.40 on Monday to extend Friday breakout above the 93.00 key resistance level.

U.S retail sales jumped to its highest in five months in the month of August to beat 0.8 percent decline predicted by experts. Retail sales grew by 0.7 percent in August to increase the odds of the US Federal Reserve announcing tapering during next week’s Federal Open Market Committee (FOMC) meeting.

U.S. consumption is not slowing as quickly as it appeared a month ago despite the fading stimulus, and the Delta variant did not much affect the industries feeding into retail sales,” said Chris Low, chief economist at FHN Financial in New York. “The economy continued to hum in August.”

Against the Japanese Yen, the U.S dollar strengthened to 109.48 from 109.91 attained on Friday on broad-based selloff during London trading session, while heavy selloff plunged British pound against the U.S dollar 1.36610 before reboundling slightly to 1.36946.

The Euro dropped from 1.17883 recorded on Friday to 1.16995 on Monday during London trading session.

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