Can The Pound Maintain This Week’s Improvement As Markets Await Bank of England Interest Rate Decision?

The Bank of England decision on interest rates is due at 12 noon today which happens to coincide with a morning that has revealed slumping house prices and a widening UK trade deficit. In a week that has so far seen Sterling strengthening on the back of the Euro crisis, the Pound seems to have broadly withstood this data so far. Interest rates are widely expected to be held at 0.5 percent but in keeping with the last few meetings, a split in the vote on both rates and stimulus measures is expected.

Pound Sterling – UK Markets

The week has continued to shape up as a positive one for Sterling with strong manufacturing data and the Euro-zone woes pushing the Pound higher. The Bank of England will be under focus today as the interest rate decision is due at 12 noon. Although the Bank of England is expected to once again maintain the same monetary policy and interest rates at 0.5 percent, the factor that may once again affect markets is the level of split in the voting on interest rates and quantitative easing. The minutes in two weeks time will as usual offer much further illumination on the outlook for the economy. UK data this morning has been disappointing with an expected reduction in the trade deficit not emerging - rather the imbalance between import and exports has widened to -£8.529 billion. This was accompanied by the Halifax house price report which revealed house prices slipping further by 0.1 percent in November.

US Dollar – US Markets

The US Dollar is having a mixed week, having broadly gained on the Euro, but has experienced a downwards slide yesterday afternoon. The Dollar also dropped to its lowest point so far this week late last night against Sterling. Looking at the US Dollar over the course of the month however, its position is still relatively positive with Obama’s decision to extend tax cuts introduced by Bush helping to drive the Dollar as well as the Euro crisis.

Euro – European Markets

The Euro remains pressured as Ireland continues to resolve and pass its budget and fears over the lack of agreement between different Euro zone nations on how to handle the amount of back up rescue funds intensifies. This has been added to by comments from the International Monetary Fund chief Strauss-Kahn about the troubling uncertainty hovering over the currency stating that ‘the future is more uncertain than ever’. There has been much focus in the press and an understandable concern from clients about whether or not there really is any chance that the Euro currency could disintegrate – we were asked to give a view on this by the press and you can see our own comments HERE.

Other Currencies – Highlights

Japan’s GDP has been upwardly revised for the third quarter which is thought to be due to higher public spending. The previous estimate was for a rise of 3.9 percent which has now been established as at 4.5 percent. Economists remain cautious about the outlook in Japan with a strengthening Yen and falling prices being an ongoing problem. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.