Pound sterling set to end the week on a high note, advances vs EUR, USD and AUD

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Pound sterling set to end the week on a high note, advances vs EUR, USD and AUD

Post  Josephfx on Sat Jul 14, 2012 2:21 am

he pound sterling (Currency:GBP) has powered forward through the course of Friday's trading session, registering gains against a host of key currencies.

The pound dollar exchange rate is is seen 0.29 pct higher at 1.5475.

The pound euro exchange rate is now 0.5 pct in the blue at 1.2706.

The pound to Australian dollar pair is meanwhile just 0.06 pct in the red at 1.5200. Earlier on in the session the Aussie currency was 0.2 pct for the better against the pound.

As we move into the afternoon session there can be no doubt that the sterling is today's outperformer on the foreign exchange market place.

There is no obvious reason, but we would be inclined to think markets are welcoming a new policy initiative to stimulate the British economy known as the Funding for Lending Scheme (FLS).

Again, it would seem, Britain is ahead of the pack in terms of stimulus. But, how does this translate into a stronger pound?

Well, if the economy is seen improving, and inflation starts picking up there would be no incentive for the Bank of England to have to expand the quantitive easing programme (QE). QE is notoriously bad for a currency as increased supply in any product pushes down value.

The BoE has outlined the details of its lending plan, which could potentially provide £80bn in credit to consumers and commercial borrowers.

Starting August 1st, banks can borrow up to 5.0% of their loans to the non-financial sector at a cost of 0.25%, and will only face an escalation in costs in the event of a contraction in lending; the program will run for 18 months and has a four year repayment term.

"The FLS is a combined effort from the BoE and the UK Treasury, both of whom hope that low-cost funding to the financial sector, structured to incentivise loan growth, will help make credit available to borrowers that have not directly benefitted from QE," says Eric Théorêt at Scotiabank.



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