Exchange Rates Today: Euro Recovers But Pound and US Dollar Correct Lower

Today it is the pound sterling (GBP) which is under pressure after two Bank of England members warned the Bank may hold back on raising interest rates.

The monthly ECB meeting is however today's highlight - no changes to policy has been announced and the EUR has shot higher in relief.

The all-important US Non-Farm Payrolls come on Friday and the US Dollar needs a strong outcome to sustain its rally further.

At the time of writing:

• The pound to dollar exchange rate is 0.28 pct lower, the conversion is made at 1 GBP = 1.6098 USD.
• The pound to euro exchange rate is 0.09 pct lower, the conversion is made at 1 GBP = 1.2734 EUR.
• The euro to dollar exchange rate is 0.21 pct lower, the conversion is made at 1 EUR = 1.2642 USD.

If you are holding out for better rates DON'T HESITATE: Ask your FX provider if they have the relevant stop loss order to protect against downside losses and the relevant buy order to take advantage of your optimal rate when reached (learn more). In addition, bypassing your bank can deliver up to 5% more FX.

British Pound Today: Bank of England Talks Sterling Lower

The pound is today subject to the release of Markit Construction PMI data - the figure was predicted to have fallen to 63.5 but came in at 64.2.

A strong beat on expectations and this will certainly help underpin sterling longer-term.

However, it was comments from two Bank of England MPC Members that caught market attention. 

MPC Member Kristin Forbes warned the impact of a high sterling could keep inflationary pressure in the UK lower for longer. Low inflation = no need to raise rates; markets are looking for a rate rise in early 2015 and these remarks will have caught them by surprise.

BoE deputy governor Ben Broadbent said today in an interview that the UK economy, although already quite strong and on the path to normalisation, still wasn't ready for a rate increase.

Broadbent said: "there is still no evidence that low rates are breeding higher risk." The comments triggered a sharp fall in GBP.

However, the UK economy reamins on track to deliver strong growth and we would view dips as opportunities to buy, particularly against the euro.

"The UK economy continues to post some of the best results in the G-7 universe and there is still a strong chance that the BoE will be 'first to hike' since the 2008 credit crisis. Later in the week the market will get a glimpse at the troika of UK PMIs and if the data proves positive, cable may get its bid back," says Boris Schlossberg at BK Asset Management.

It appears that it is a case of 'steady as she goes' when it comes to GBP as much of the good growth has been factored in to the sterling's valuations.

"Although the pound rose to new two-year highs against the euro, underlying sentiment hasn’t been the same since the Bank of England suggested a rate hike would likely arrive later rather than sooner due to lower wages and inflation," says Joe Manimbo at Western Union commenting on the all-important guess work being conducted by markets over the timing of a UK interest rate hike.

US Dollar Today: USD Ploughs Ahead, BUT a Correction Must Surely Take Place

There is no stopping the US dollar at the present moment. However, we expect the USD rally to ease as we approach Friday's all-important US employment figures. The figure must beat estimates to fuel the next leg of the rally.

That said, despite the USD being wildly overbought by historical standards there appears to be little standing in its way.

The rally in the USD (as measured by the dollar index's performance) has run on for 11 weeks through last Friday—an unusually lengthy period of uninterrupted gains.

Despite the recent strength analyst Shaun Osborne at TD Securities warns that the USD rally may be due a correction:

"The USD rally has a lot of momentum behind it but it is hard seeing developments sustaining this pace of gains for much longer without some sort or pause.

"The more fundamentally supportive developments that helped underpin the USD’s gains against the EUR in recent weeks have showed signs of weakening or reversing; the negative spread between (worse than expected) Eurozone and (better than expected) US data surprises has reversed over the past week or so, even accounting for today’s downside miss in the Eurozone CPI data.  Ditto for short-term, Eurozone/USD interest rate spreads which have narrowed in the EUR’s favour since September 4th."

Euro Rate Today: New Lows are Hit, But is the Sell-Off Exhausting?

Despite some relief gains mid-weeek, the going remains tough for the shared currency.

Indeed, the euro has hit fresh yearly lows against the dollar and pound sterling over the course of the past week.

"Evidence of worsening economic conditions in the euro zone took another heavy toll on the euro which plunged to two-year lows against the greenback below $1.26," says Mannimbo.

"EURUSD’s decline reached a new benchmark overnight, edging to a new cycle low yesterday, dropping to a fresh two-year low just below 1.26 in response to the slower-than-expected (core) inflation growth in the Eurozone for September. From a broader, thematic perspective, we remain conviction USD bulls and fully believe the USD rally has further room to play out in the coming months," says Osborne.  

However, from a shorter-term, tactical point of view, TD Securities remain concerned that the USD rise—especially against the EUR—has run on a little ahead of itself over the past couple of weeks.

According to Western Union, "the euro has lost about 9 percent against the greenback in the third quarter with more losses likely over the final three months of the year."

Regarding the outlook, Lloyds Bank Research say the ECB meeting is key:

"Market focus will turn to the ECB meeting on Thursday now. Focus will be on any comments surrounding the recent weakness in inflation as well as the details and size of the ABS and covered bond purchase program. With few key releases from the Eurozone today, uncertainty surrounding tomorrow’s event EUR/USD remain relatively range bound."