Thursday 21st July 2011
Good morning. Sterling has stabilised slightly after the BoE minutes yesterday. 2 members voted for an interest rate hike, but 7 voted to keep rates on hold. 1 member voted for further Quantitative Easing, less than had been thought and this gave the Pound some support. Today we have a crunch meeting of eurozone leaders to resolve the Greek debt crisis and prevent further contagion to other eurozone economies. We'll look at this after the usual 08:30am rate snapshot:
• GBP/EUR 1.1335
• GBP/USD 1.6169
• GBP/AUD 1.5070
• GBP/NZD 1.8863
• GBP/CAD 1.5286
• GBP/ZAR 11.070
• GBP/JPY 127.26
• GBP/DKK 8.4487
• GBP/NOK 8.8331
• EUR/USD 1.4259
Bank of England Minutes
There is a reduced chance of a rise in interest rates in the near term, given recent economic weakness, Bank of England policymakers have said. Minutes from its July meeting showed the Monetary Policy Committee voted seven to two in favour of holding rates at 0.5% for the second month in a row.
The fact only one member voted for further Quantitative Easing did give the Pound a slight boost, but the fact rates will be low for some time to come is likely to keep Sterling weak. Analysts said focus would now switch to what is expected to be sluggish preliminary UK growth data for the second quarter, due to be released next week. UK retail sales for June released on Thursday are forecast to rises at a modest 0.5 percent.
EU debt crisis, Summit to discuss solution
German Chancellor Angela Merkel and French President Nicolas Sarkozy have hammered out a common position on the euro debt crisis. A statement by the French president's office said agreement had been reached after seven hours of talks in Berlin.
It comes ahead of a crunch meeting of eurozone leaders to resolve the Greek debt crisis and prevent further contagion to other eurozone economies. Policymakers are set to discuss a range of measures at the meeting later on Thursday, including a new loan package to Greece and the role of private investors in any debt restructuring.
What effect will it have on exchange rates?
The meeting is at 1pm today, and it could cause significant volatiliy for GBP/EUR rates. If they agree a plan that calms the markets, we could see rates plummet. If they don't agree a plan and it leaves the EU in turmoil, the Euro could weaken and rates could go up.
We think they have to agree a plan, after the International Monetary Fund has also called on European leaders to take swift and decisive action. Delaying such action further would be "very costly" for the world economy, it said.
Today's Data
Today is busy for Fundamental data. Starting in the EU, we have various measures of inflation, which could support the cause for further interest rate hikes in the EU, which may strengthen the Euro. In the UK we have Retail sales and a measure of Public Sector borrowing. From the US we see various measures of unemployment. Of course the EU summit is the main event today, and we will be posting regular updates on this and exchange rates on twitter.
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Labels: Bank of England, EU Debt Crisis, EU Summit, Interest Rates