Interest Rate Decisions Today

5 June, 2014

Robin Haynes

Today sees the monthly interest rate decision announcements by both the Bank of England, and the European Central Bank. Although no change in rates is expected in the UK, the ECB is widely expected to cut its benchmark interest rate, which could give us a cheaper Euro depending on the extent to which a move is ‘priced in’ to the market. If ECB President Mario Draghi goes further, and introduces negative interest rates on deposits, we would be very likely to see Euro weakness, providing an opportunity for those of you sending Euro payments.

Interest rates are such an important factor for the currency markets, and the ECB’s press conference after their announcement will also be scrutinised for clues to future policy. Mr Draghi’s early afternoon speech will cover the recent poor Eurozone figures, which have showed inflation too low, unemployment too high, and growth too sluggish. These factors have kept the Euro cheap over recent weeks, so there is no certainty that the single currency has further to fall, and much will depend on the ECB’s attitude to growth and recovery. In fact in these situations we often see the opposite effect on exchange rates, with an embattled ECB potentially coming out fighting with policies seen as strong by the markets. Either way, be on alert this afternoon if you have Euros to buy or sell, as one thing that is very likely either way, is some volatility in exchange rates.

As for the Bank of England, we will have to wait a couple of weeks before we see the minutes of today’s announcement, which is almost certainly for interest rates to be kept on hold in the UK.

Yesterday’s UK Services sector data did give the Pound a small boost, and the UK trade balance is released tomorrow. Fears over the British housing market are bubbling again, with house prices rising above the rates of inflation and wage growth, so the Bank of England may be keen to ensure that the lessons of 2008 are learned in the coming months – no economy is invincible in the current climate.

For any international transfers, you can save money using currency brokers such as Currency Index, contact us for a quote or if you would like us to alert you to any opportunities to buy at preferential rates in the coming days and weeks.

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