Bank of England Meeting Puts Inflation Back On The Agenda

The monthly Bank of England monetary policy meeting is happening this morning with the announcement on interest rates and support measures due at noon. It is widely expected that monetary policy will be maintained this time round with interest rates staying at 0.5 percent and the bond programme being held at £200 billion. The split on voting will not be known until the minutes are published in two weeks time, but the meeting will put the high inflationary pressures that the Bank is having to deal with back into the spotlight as predictions mount for an interest rate rise sooner than originally thought in 2011. Sterling is at around a one month high against the US Dollar so speak to your broker today regarding any transfers you have to make in the future.

Pound Sterling – UK Markets

The Pound has risen to a one month high against the USD. It has fallen slightly against the Euro although is still at a relative high for recent months. Yesterday’s widening trade deficit data had some impact and today sees the Bank of England monetary policy meeting. Although there is expected to be no change to interest rates today, above-target inflation has been an ongoing issue in the UK, which will no doubt be addressed in the minutes which are released in two weeks time. Forecasters are expecting a rate rise within months which would be expected to lift Sterling. For today however, with monetary policy expected to remain unchanged, data this morning in the form of industrial and manufacturing reports may be important. Manufacturing has been the sector hailed for helping to grow the UK economy with some very strong figures of late and has once again come in above forecasts showing an increase of 0.6 % production in November.

US Dollar – US Markets

The Dollar moved much lower against the Euro in the second half of yesterday as the Portuguese bond auction was more successful than many had expected. It was a mixed day however with the Dollar Index up against the Yen but down against the Pound. US retail and sales data will be watched by markets closely tomorrow in a week that has so far been quiet on the US data front with events seen in Euro-zone influencing markets. Today, jobless claims are expected to drop and the trade balance figures may also give a key picture of how well the US is managing to export goods to help build growth.

Euro – European Markets

The Euro has hit a one week high against the Dollar as optimism mounted yesterday as a result of the Portuguese bond auction which was more successful than expected. This help to dampen fears about an imminent rescue package for the nation. Confidence also grew that European leaders appear to be making all efforts to quell the crisis within the ECB by buying bonds. A finance minister meeting being held next week may see the size of bailout funds increased and other issues such as lower rates on bailout loans discussed. Today sees Spanish and Italian bond auctions following the Portuguese auction yesterday. There is also the interest rate decision from the European Central Bank. Similarly to the UK this is expected to show no change on rates or stimulus. There will however be a press conference and markets will no doubt be watching Trichet’s comments on the intervention of markets in the bond auctions this week and his outlook for growth.

Other Currencies – Highlights

The Swiss Franc has performed poorly against the Euro and the US Dollar as well as other major currencies. This comes after the country’s central bank commented on the significant threat that the Franc’s recent appreciation, particularly against the Euro, posed to economic growth for 2011. The challenge that the strengthening Franc has imposed on exporters is causing some to suggest that a new round of foreign-currency purchases to weaken the Franc will be used by the bank. The Swiss central bank previously intervened to weaken the Franc for more than a year and ended this policy in June 2010. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.