Awaiting an early summer UK interest rate rise
The financial press is becoming increasingly obsessed with interest rates – not just in the UK but in Europe as well – and this is one of the key factors influencing exchange rates this week. The other major factor is the effect of political tensions in the Middle East. This Wednesday saw the Bank of England minutes released that arrive every month, two weeks after the policy meeting, to reveal how voting was split on interest rate decisions. Sterling crept up at 9.30am this morning by about 0.4 percent on most other major currencies in the first half an hour as the minutes revealed that joining the two voters for a rate rise from last month was another member. With three now voting for an interest rate rise, there is ever-increasing speculation that an interest rate rise will come earlier and earlier. When the interest rate rise does occur, we would expect to see this lift Sterling. Most pointers are now indicating to ‘early summer’ – which is the fairly vague time that was mentioned in this morning’s minutes. As mentioned however, the interest rate hype is kicking off in Europe as well, meaning that the Euro has also been faring quite well this week as officials from the European Central Bank give comments suggesting that they are beginning to see a rate hike as more likely. News from the wider Euro zone has also been positive with activity in the factory industry growing at its fastest rate since June 2000, reaching 59 in the index and PMI reaching a four and half year high at 58.4. There is something acting against the Euro this week however which has tempered gains. That is the effect of tensions in Libya causing currency investors to become more cautious and return to their ‘safe-haven’ flows. For this reason, the US Dollar became stronger towards the start of this week and this may continue depending on how the political situation there pans out.