Interest rates are to be held again at 0.5 percent this month, the Bank of England revealed at 12 noon today following their latest two day monthly policy meeting. This is what had largely been expected by currency markets with most still predicting than an interest rate rise will not come until much nearer the summer in the UK so there was little immediate impact in the currency markets. Sterling has however moved up on the Euro over the past twenty fours, as Spain became the next Euro zone nation to be downgraded by Moody’s Rating Agency with a negative outlook.
Pound Sterling – UK Markets
Sterling rose on both the Euro and the Dollar throughout the second half of yesterday but has tailed off against the Dollar so far this morning. Stronger than expected manufacturing and industrial data helped Sterling along against the Euro before today’s rate decision took place.
Manufacturing production data came in at a reading of 1 percent – well above the prediction for a 0.6 percent reading. Industrial production also came in at 0.5 percent rather than at the expected 0.4 percent level for January. These sectors have been the cornerstone of the UK recovery, greatly fuelled by the export market and demand from abroad.
Today’s interest rate decision held no surprises, with markets expecting the 0.5 percent hold on rates. What will be more likely to move exchange rates is what is revealed in the minutes in two weeks time regarding whether more policy members voted in favour of a rise and whether the prediction for when this might happen has moved earlier.
US Dollar – US Markets
The Dollar increased in strength against the Euro as sovereign debt issues intensify in Europe. The currency has also been gaining on Sterling so far today, with the US uninvolved with the ‘interest rate race’ issues taking place between the two other economies.
There are also expectations for this afternoon’s jobless benefits to have decreased to the lowest levels since October 2008. In the area of initial jobless claims however, there is a rise of 10, 000 expected.
Euro – European Markets
The Euro fell to the lowest level in a week against the Dollar and also dropped against Sterling. Earlier in the week, we reported the negative impact that the downgrading of Greece’s credit rating by Moody’s had on the Euro. A similar move has now been made with Spain with the rating dropping to Aa2.
Moody’s have a negative outlook on the Spanish rating largely due to the fact that it predicts shortfalls in the amount of Spanish funds available to restructure the Spanish banking system and offer bail outs.
There was also news that Portuguese Government debt rose in value as well as Greek unemployment hitting a record high which will stoke fears about the strength of the Euro zone as a whole.
Other Currencies – Highlights
New Zealand have cut interest rates to a record low in response to the economic damage caused by the Christchurch earthquake. Expectations are now that rates will not rise again until the first quarter of next year.
The New Zealand Dollar has fallen by 5.7 percent so far this year and fell against other major currencies after the rate decision.
The Pound continues to weaken following disappointing UK retail sales data
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Sterling declines against Euro as UK wage growth slows