UK interest rates are set to rise by early summer 2011 according to the latest Bank of England minutes from February’s policy meeting released this morning. This has moved forward from the month of August that was mentioned in the previous minutes. There was some reaction in Sterling which gained up to 0.4 percent on some major currencies in reaction to the release at 9.30 am although the initial effects are now flattening out.
Looking forward, the minutes will help to give Sterling ongoing momentum by crucially revealing that this month a third policy member, Spencer Dale, joined the other two policy members that voted for a rate increase last month. Discussion over European interest rates is also very much in the press so any Sterling or Euro transfers are sensitive to ongoing comments by policy members in both the Bank of England and the European Central Bank. Stay in touch with your broker to keep on top of movements.
Pound Sterling – UK Markets
This morning’s Bank of England minutes revealed that this month saw three policy members vote for an interest rate rise with Spencer Dale joining Martin Weale and Andrew Sentence in calls for a hike. This incited an instant rise in Sterling although the initial effect petered out as rates flattened off after the first half an hour had passed.
In general however, the minutes are likely to help the Pound. Not only had the amount of members calling for a rate hike increased, and the prediction for a rise shifted forward to ‘early summer’, but the minutes also tackled the issue of the dire GDP figures that we saw for the fourth quarter of 2010. The minutes commented that GDP figures which had registered negative growth of -0.5 percent would have come in at a positive reading were it not for the snow.
US Dollar – US Markets
The US Dollar gained on the Pound throughout the second half of yesterday but dropped against the Euro. It has been losing out to the strengthening Pound so far today. Whilst the Euro and Pound are responding to interest rate discussions, the Dollar is still reacting to events in the middle East.
Tensions in Libya pushed both the Dollar and the Swiss Franc higher as a safe-haven store for funds. The Dollar also benefited from the credit downgrading of Japan, as the Yen is also typically used as a safe haven but the Dollar became a better choice.
Euro – European Markets
The Euro received a temporary boost from robust news yesterday with German business confidence growing to 111.2 from 110.3 yesterday. In the wider Euro Zone, activity in the factory industry grew at its fastest rate since June 2000, reaching 59 in the index and the PMI reached a four and half year high at 58.4. After a short gain, the currency has since lost out as safe haven flows have gone to the Dollar, Yen and Swiss Franc.
Rhetoric about whether interest rises may be set to occur in Europe is also continuing to come from European Central Bank policy makers which markets will continue to watch for clues as to if a rate rise may actually be imminent.
The Swiss Franc is going from strength to strength climbing to a three week high against the Euro in response to both its use as a safe haven as well as a growing trade balance surplus.
Other Currencies – Highlights
The New Zealand Dollar, still relatively weak in response to the sudden earthquake, did show its first attempt at some partial recovery yesterday after Moody’s Rating agency commented that they did not believe the earthquake would have any necessary impact on the nation’s credit rating.
Ultimately however, the currency is still much weakened at present and has been on a downwards path to new lows this week against Sterling so far today.
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