Sterling Drops As Interest Rate Rise A Long Way Off

The Bank of England minutes this morning have revealed how the voting was split at the last interest rate and policy setting meeting earlier this month. The minutes have been crucial to exchange rate movements every month recently with the ‘interest rate race’ between the UK and Europe being the main factor creating currency movements. Unfortunately for Sterling, there was no new support for a rate rise in April’s meeting with only three members still voting in favour of such a move. Sterling dropped as an instant result this morning.

Pound Sterling – UK Markets

It was bad news this morning for those hoping that Sterling would continue to pick up as the Bank of England minutes arrived to knock the currency back down by 0.4 percent against other major currencies as no more policy members voted for an interest rate hike. The minutes revealed that only the three same policy makers as last month, Andrew Sentance, Martin Weale and Spencer Dale, voted for a rate rise with six policy members still voting against. An interest rate rise was ear-marked for ‘the middle of the year’ which will be disappointing news for those that were hoping it may come as early as next month. The minutes also referred to the surprise drop in inflation but did still suggest that inflation is expected to rise as high as above 5 percent with energy and commodity prices on the increase.

US Dollar – US Markets

The Dollar has experienced a steady drop against the Euro since late Monday and has had similar movement against Sterling apart from clawing back a little ground today after the Bank of England minutes. The negative outlook for US debt given by Standard and Poor’s earlier this week to suggest that their AAA credit rating might be under threat has continued to add pressure to the usual ‘safe haven’ currency this week. Positive housing start and building permit figures yesterday did not help the currency.

Euro – European Markets

Consumer confidence figures were lower yesterday in the Euro-zone but the Euro is rising back towards its earlier peaks against Sterling seen in the past week. The fact that the European Central Bank are tightening policy and raising rates whilst policy makers in the UK are remaining cautious is still the driving factor. Producer price data from Germany this morning fell to below target but was overshadowed by global news and the Bank of England minutes.

Other Currencies – Highlights

The Canadian Dollar has been surging on the Pound and the US Dollar accelerated by the latest inflation figure. Inflation grew at the fastest rate in two and a half years in March to 3.3 percent. This has added further pressure to the Bank of Canada to increase interest rates in the next three months. Inflation has grown much faster than the by the Bank’s forecast that inflation take until June to reach 3 percent.