Today we have interest rate announcements by both the European Central Bank and Bank of England. Also this afternoon we have lot's of US data, so expect volatility today for both EUR and USD. We'll take a quick look at where Sterling is this morning, and then look at what effects the interest rate decisions may have.
Yesterdays Trading
The pound fell broadly in the morning, caused by data from the Halifax that showed that house prices in the UK fell 1.7% last month. Economists had expected a fall of 1%. This caused the initial decline, only for the pound to recover later in the afternoon after stronger than forecast UK service sector data overtook the fears over the banking sector. This caused many investors to believe that the economy in the UK is starting to recover from the recession. The rise in the services index was the biggest in 10 years, even though the sector continued to contract.
We are now close to the best rates all year for both the Euro and US Dollar, so anyone that needs to purchase these currencies may wish to consider fixing their rate in advance of today's announcements to protect from any loss. If you want to take a gamble on rates continuing to climb, then you can place a Stop Loss order, to protect you in case exchange rates move down.
Interest Rates and Exchange Rates
Today as with the first Thursday of every month, we see the interest rate decicsions for both the Bank of England (BoE) and European Central Bank (ECB). These are announced at 12:00 and 12:45pm respectively. These decisions can cause extreme volatility for exchange rates, in particlur GBP / EUR Sterling Euro rates.
Bank of England
Most analysts expect the BoE to leave rates on hold as rates are already very low at 0.5%, and so there is little room to move. However, we may see announcements with regards to further measures of Quantitative easing, which may well weigh heavy on the pound and cause the recent gains to be wiped out.
European Central Bank
Currently EU rates sit at 1.25%, and I beleive they will cut rates by 0.25% to leave them at 1%. This would normally weaken the Euro and cause exchange rates to climb, however because the cut has been widely predicted for some time, this is already prices into exchange rates for the most part. So, if rates are indeed cut to 1% there may be little movement in rates. If however a bigger cut is announced, then expect exchange rates to rise.
USA
Elsewhere this afternoonm, we have various announcements from the USA that will likely cause volatility in GBPUSD rates:
At 13:30 we have Non-Farm Productivity and Jobless Claims.
At 14:30 we have a speech by the Fed Chairman Ben Bernanke.
At 20:00 there is a consumer credit report.
22:00 see's the much waited bank stress test - this is a key measure of how banks can aborb losses - it was supposed to be released earlier in the week, but Regulators and bank executives were concerned about how the disclosure would be handled, because weaker institutions could suffer a collapse in their stock prices.
“Everybody understands they’ve got a tiger by the tail here,” said the senior vice president at the ABA.... “If they don’t let him go gently, there will be a lot of mauling going on.” I think the release will be very controlled, but we may see a further weakening of the US Dollar.
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