The Pound fell to its lowest value in 13 years against a basket of major currencies yesterday following a sharp decline in the service sector. Sterling has continued to fall this morning ahead of the Bank decision and is currently at 1.44 versus the Dollar and 1.15 against the Euro.
Falling by over 2 points to 40.1, the service sector index showed a record contraction in November. In combination with weak manufacturing and construction data and in anticipation of rate cuts later in the day, the value of Sterling has been capped internationally. Extremely weak growth figures, rising unemployment, falling inflation and low consumer confidence are all adding to the expectations of a 1% interest rate cut by the Bank this afternoon. If base rates are reduced to 2% this would be the lowest rate since 1951. Economists are now predicting we could see a 1% economic contraction in the fourth quarter of 2008, following a 0.5% contraction in the third quarter. The Bank decision is due at noon and the scale of rate reductions is likely to influence the value of Sterling against the Euro and US Dollar.
The US Dollar has strengthened internationally this morning as investors shy away from the European currencies ahead of rate decisions this morning. The Dollar is up 1% against the Euro and nearly 2% on the Pound.
ISM figures yesterday showed 250 000 private sector workers lost their jobs last month as the credit crunch continues to claim casualties in the US. The official US employment report will be the focus of markets tomorrow as it has a strong bearing on consumer confidence and business sentiment. Oil has fallen to below $45 a barrel amid negative economic sentiment and low expectations over employment figures.
The Euro has plunged to below 1.26 versus the US Dollar and declined against a basket of major currencies ahead of ECB interest rate decisions this afternoon.
Recent data in the Eurozone shows a deepening of the economic downturn with rising unemployment figures, economic contraction and declining consumer confidence. Retail sales for the Eurozone fell by 2.1% yesterday, well ahead of the predicted -1.4% and economists are predicting a reduction of 0.5% in the base rate this afternoon. European equities lost ground yesterday but are likely to respond positively to rate decisions. Tomorrow the market focus will switch to the US where official employment figures are due.
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