BoE hold interest rates whilst USD rallies

10 May, 2013

Matthew Boyle

Yesterday saw the anticipated Interest rate meeting of the Bank of England following the recent ECB decision to cut theirs. It was announced that interest rates in the UK would be held which saw the pound rally by half a cent against the Euro, whilst the minor gains it had made against the USD were eroded. Indeed the USD rallied yesterday against the majority of its peers as the FED now enters a third round of stimulus which looks set to boost sales and continues the bullish attitude from the US in regard towards economic policy and recovery.

It has been a relatively stagnant period for the pound, particularly against the Euro with it seemingly unable to move outside a fairly small range. Following the recent Cypriot crisis, and surprise UK GDP data that the cross is struggling to break through certain price points and it would seem until we see a significant announcement from either side this stalemate may continue. Later today the G7 meet to discuss banking reforms and will give UK Chancellor George Osborne the opportunity to meet with Carney who replaces King in a few months. Certainly for the pound the big question which still remains is will there be further Q.E later this year when Mark Carney takes over on the 1st July?

Today is quiet in the way of major data releases, although we do have a trade deficit report in the UK which is thought to show it narrowing during March. This could largely be due to the weakness of the pound so far this year, which encourages exports. This is encouraging for the UK as many analysts feel the pound is over- priced and in order to reduce the deficit GBP rates need to be slashed against counterparts to further boost UK exports and encourage trade. A positive result here could only indicate a reduced need for diluting the pound and perhaps reduce the underlying need for further Q.E.

Elsewhere the struggling Japanese Yen dropped further against the USD breaking the 100 and continuing its 25% loss this year alone. The AUD also dropped around 0.4% against the USD to almost parity following the RBA lowered its inflation forecast following an interest rate cut earlier this week. It does now seem that the USD has returned to the top spot as no1. safe haven currency- benefiting from the ongoing global economic issues, and a long way from the “fiscal cliff” fears of 2013.

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