Thursday, 17 February 2011

Sterling falls on BoE report

17th February 2011
Good morning. An interesting few days in the markets, with Sterling surging following the high inflation figures earlier in the week, only to drop back away due to high UK unemployment. We'll look at this in detail after the usual snapshot of rates as at 08:30am:

  • GBP/EUR 1.1871
  • GBP/USD 1.6094
  • GBP/AUD 1.6012
  • GBP/NZD 2.1284
  • GBP/CAD 1.5828
  • GBP/CHF 1.5396
  • GBP/ZAR 11.598
  • GBP/JPY 134.37
  • GBP/HUF 319.64
  • EUR/USD 1.3556

Sterling falls after BoE report & unemployment

Sterling fell yesterday against most currencies including the Euro and US Dollar after Bank of England Governor Mervyn King warned investors against jumping to conclusions about when interest rates may go up.

Although the BoE's quarterly Inflation Report did seem to indicate inflation would remain high, King's comments appeared more dovish to a market that had been pricing in a big chance of a rate hike.

On Tuesday the pound had surged upwards against other currencies when a big lift in inflation and a reference to an interest rate rise in King's letter to finance minister George Osborne supported the view that tightening may be imminent.

Where next for the Pound?

Sterling has rallied since the start of the year on the growing view that interest rates will rise, but some analysts say the BoE will first monitor the country's fragile economic recovery while gauging the impact of drastic government austerity measures.

Signs of a struggling economy were evident yesterday as a surprising rise in the UK jobless numbers underlined weakness in the country's labour market, while a measure of consumer confidence also fell.

The BoE's King said these poor figures highlight the fact the economy is still fragile and many analysts may be getting ahead of itself in speculating rates will rise in coming months.

"Some people are running ahead of themselves and saying that we are pre-announcing or laying the ground for a rate rise," King told reporters, adding that the central bank never endorses market rate expectations.

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