Interest Rate Race Heats Up As Europe Takes The Lead

Europe has edged ahead of the UK in the race to raise interest rates. Prior to yesterday, it had been assumed that the UK would be the first of the two to raise interest rates in the summer, but yesterday’s press conference following the European interest rate decision has now altered that. Although rates were held at 1 percent, Trichet suggested that the European Central Bank may be ready to raise interest rates as early as next month which provoked an instant gain in the single currency. Speak with your broker about how this may have affected any transfers involving the Euro.

Pound Sterling – UK Markets

The Pound gained 0.12 percent on the Dollar yesterday but fell back against the Euro following comments from Trichet in yesterday’s press conference suggesting that European interest rates could rise as early as next month. It was also revealed this morning that UK house prices fell at their fastest rate in a year in February which will stoke fears about the UK recovery. This morning saw more disappointing UK data with Halifax revealing that UK House Prices fell by 0.9 percent in February. This is disappointing news following a rise in house prices by the same percentage previously recorded in January. The average house price is now £162, 657.

US Dollar – US Markets

The Dollar fell back against the Pound and Euro yesterday however a set of US data due today is expected to come in strong which may bring some upwards movement should it not disappoint. US employers are expected to have added the most jobs since May, and factory orders to have increased for a third month. The data on US Non farm Payrolls this afternoon is typically seen as the most crucial indicator of the true state of US employment and tends to bear on the Dollar’s strength. The prediction for this afternoon’s figures is that it will have jumped up to 183,000.

Euro – European Markets

Interest rates were held at 1 percent by the European Central Bank yesterday. However, the single currency shot up in response to comments made by the European Central Bank President Jean-Claude Trichet in the subsequent press conference where he suggested that an interest rate rise in the next monthly meeting is a possibility. Trichet spoke of the risks of high inflation long term and that such a move may be taken to ensure price stability. Markets have reacted instantly with the Euro gaining 0.59 percent on the US Dollar and 0.46 percent on Sterling over the course of yesterday.

Other Currencies – Highlights

The Australian Dollar has fallen to its lowest levels in five weeks against the Euro on the prospect that the European Central Bank will raise interest rates faster than the Reserve Bank of Australia. The New Zealand Dollar similarly fell against the single currency, following the recent news that the Reserve Bank of New Zealand may conversely have to cut rates soon.