Sterling falls on Paul Fishers comments
Yesterday ths policy maker at the Bank of England painted a very gloomy picture of the UK economy, saying the economic recovery remains fragile and more monetary stimulus may be required in the UK. His comments caused investors to sell the Pound and as a result Sterling took a sharp fall against other currencies.
Investors are now not expecting a UK interest rate hike until next year, while the Eurozone is likely to raise their interest rates in July this year. This means the better return on offer in the EU will cause investors to move from Sterling to the Euro, and this will likely continue to push GBP/EUR rates downwards.
So what's going wrong with the UK economy?
Data yesterday showed that the UK has run up a record budget deficit in the last few months, and slowing economic growth is posing a challenge to the government that want to slash borrowing. Also factory orders are down, consumers have turned very cautious and manufacturing and services sectors have both disappointed in recent months.
Analysts say that the downside risks to growth far outweigh the risk of rising inflation, and it's because of this that interest rates are unlikely to move any time soon. Today we will see the minutes to the recent Bank of England vote on interest rates, and it will be interesting to see how the 9 member committee voted.
Greek government wins vote of confidence
The euro weakened very slightly yesterday after the Greek government won a vote of confidence as expected, but further losses may be limited as the market's focus turns to the Federal Reserve and its comments on the slowing U.S. economy.
The Greek government now faces a more arduous task of passing an austerity plan in order to secure a new bailout from the European Union and IMF. This is next Tuesday, and we expect volatility for the Euro.
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Labels: Bank of England, Greek vote of confidence, UK Economy