Thursday morning saw Sterling trade very well against the Euro on anticipation that the Bank of England would give further insight into the UK’s interest rates in the future. As expected the MPC kept the rates unchanged at the current record low of 0.5% and further quantitative easing remained on hold.
The Pound suffered slightly on this announcement but it fluctuated much less than expected when the European Central Bank raised their interest rates up 0.25%. At the press conference following the 12:45 announcement Jean-Claude Trichet, president of the ECB, signalled that the interest rate rise earlier in the day was possibly not the first in a series.
The Euro still remains supported by the interest rate differential over the UK as the euro zone rates are now sitting at 1.25%. With the Bank of England’s Monetary Policy Committee still sitting on their hands over the future rises in the UK, it’s still expected that Sterling will still trade within a tight range verses the Euro.
Following the announcement from the Bank of England at 12:00, Sterling declined against the US dollar. Although the interest rates were widely expected to remain unchanged, it seemed that certain traders were holding out for the possibility of a premature rate hike.
Markets have been pricing in a 98% chance of a Bank of England rate increase by July, but the extremely poor industrial output data from the UK on Wednesday was another set-back that Britain’s economy didn’t need.
The dovish comments from Jean Claude weighed on the Euro against the US dollar and the single currently slipped from 1.4330 down to 1.4290 over the course of Thursday afternoon. With little data to support the US dollar we could see the Euro trade over 1.43 on the release of the German trade balance.
