MPC votes 8-1
Pound Sterling - UK markets
The Sterling-US Dollar exchange rate declined sharply this morning with the release of the MPC minutes and is currently sitting at 1.41. The Pound is also down over 1% against the Australasian currencies and the current Euro exchange rate is 1.12.
Minutes from the February MPC meeting released this morning revealed an 8-1 vote for a 0.5% reduction in the base rate. The Bank has reduced interest rates from 5% to 1% in the last 5 months and is predicting the UK economy will contract 4% from mid 2008-mid 2009. This is a significant revision of the Bank's November forecast and is indicative of the steep decline we have seen since the Lehman shocks in September 2008. Recovery prospects depend largely on global economic efforts, hence the focus on US equities and the Bank of England is now looking to more unconventional fiscal policy. The main concern of the MPC is stimulating credit flows and restoring business and consumer confidence. This morning, the Work Foundation has urged the Government to provide the same financial support for manufacturing as it has for banks. Manufacturing remains a crucial sector for employment, export and GDP and is under serious pressure as global export markets contract. Results of the CBI Trends Survey are also published today
US Dollar - US Markets
The Dollar has strengthened sharply against the Pound and Euro this morning as negative economic data continues to pressure the European currencies. Against the Yen, the Dollar has climbed to 92.56 and it has weakened against the Australian and New Zealand currencies.
The $787 billion Federal Reserve rescue package was signed by President Obama yesterday, which gave a slight boost to the US Dollar as it was described as the ‘most sweeping package' in economic history. However the tone of global equities remains bearish, as uncertainty surrounds future economic prospects. General Motors and Chrysler have each asked the government for further aid in addition to that already provided by the Federal Reserve. However further aid is conditional on their economic viability and the big three auto manufacturers have until the March 31 deadline to prove their worth. The price of oil has fallen to $41 a barrel on the back of uncertainty with regard to growth prospects. Housing statistics are out in the US today.
Euro - European Markets
The Euro is weaker against the US Dollar this morning, trading at 1.25 and has also declined against the Australasian currencies. The Euro has gained against the Yen and is up to 0.88 versus the Pound following the release of minutes from the February MPC meeting.
European stocks have fallen for the third day in a row along with Asian equities on the back of global unease regarding recovery prospects. Societe Generale, France's third largest bank has posted a profit in the fourth quarter of 2008 despite losses in its investment unit and the French government has submitted details of a 6 billion plan to aid French auto manufacturers to the European Union. The Euro has also declined after Moody's claimed recession in Eastern Europe would affect the major central European economies. Euro sentiment could weaken as recession deepens across the Eurozone. There is no major data out in the Eurozone today.
Other Currencies - Highlights
Asian equities have displayed negative trends for the third consecutive day as they are still suffering repercussions from Japan's economic contraction and the global sense of unease. Japan went from being one of the best performing economies to one of the worst in the three months to December as the US asset bubble and cheap Yen were obliterated by the financial crisis. The Australian and New Zealand Dollars slumped against the Euro overnight, driven lower by concern in Eastern Europe. The Bank of Japan interest rate decision is due tomorrow.