All quiet on the interest front

Interest rates have been held again by the Bank of England at the record low of 0.5 percent. As the decision was widely expected there was little immediate impact on Sterling. However the minutes in two weeks time will be closely scrutinised for clues as to when a rate hike might be. Continuing high inflation is adding pressure for a rate increase but poor data from the end of 2010 plus the yet undisclosed full impact of the VAT rise means that a rate rise is unexpected for a few months.

Pound Sterling – UK Markets

The Pound has been experiencing volatile movement with this morning’s poor manufacturing and industrial data causing a drop against the Dollar. Moderate gains against the Euro have occurred in the run up the Bank of England interest rate decision to keep interest rates at 0.5 percent, but the anticipated announcement had no major impact if exchange rates. Sterling is in the midst of a busy few days in terms of data with the currency remaining relatively unscathed from yesterday’s disappointing trade balance figures registering the worst deficit on record. This morning’s industrial and manufacturing production figures also fell short of target with manufacturing in particular, which has previously been hailed as one of the strongest area of the economy, showing a negative reading at – 0.1 percent. The Bank of England interest rate decision at 12 noon was widely expected to reveal that rates were held at the record low of 0.5 percent. Although there has been increased pressure on the Bank of England to raise rates sooner in the year, it would have been a surprise if enough policy members joined the two supporters from last meeting to create a majority vote for the rise.

US Dollar – US Markets

The US Dollar continued to decline throughout the second half of yesterday spurred on by Federal Reserve Chairman Bernanke’s downbeat comments about the economy but has been re-gaining ground against the weaker Euro and Pound so far today. Bernanke yesterday warned about the time it will take for the US economy to fully recover, citing unemployment in particular as a venerable area. Jobless claims this afternoon will be closely watched following these comments yesterday with a drop in initial jobless claims expected.

Euro – European Markets

The Euro has been losing strength this morning following the release of the European Central Bank monthly report which signalled that an interest rate rise is not thought to be due immediately even with the problem of growing inflation. Further uncertainty in the Eurozone was also generated by reports that German Bundesbank President Axel Weber will not be standing to be head of the European Central Bank following Trichet’s step down later in the year. There is another wave of German data tomorrow with month on month Producer Price inflation figures expected to register a drop.

Other Currencies – Highlights

The Australian Dollar has suffered a second day of falls as employment figures have come in lower for January. The disappointing employment figures suggest that the economy is growing much slower and an interest rate rise soon is a less likely option. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.