The European Central Bank (ECB) announcement and following press conference caused the Euro to suffer heavy losses on Thursday. The ECB kept interest rates on hold at 1% as was expected but analysts were expecting a more hawkish tone from the ECB President Jean Claude Trichet. As inflation is currently at its highest point for more than two years at 2.4%, and above the ECB’s target rate many expected Trichet to hint at a future interest rise to calm this. However Trichet sounded sanguine about inflation and barely commented on it. This caused the Euro to fall as any increase in the Euro interest rate will be later in the year.
This statement came as two pieces of very strong economic data were released in the UK. The construction sector picked up in January after disappointing results were released in December. The gauge of building activity increased to above 50, which indicates growth in the sector.
The UK services industries also returned to growth in January, after the Purchasing Managers Index slipped into negative territory last month. The gauge of activity jumped to 54.5, from 49.7 in December, representing the highest reading since May and exceeding initial estimates. This has led many to suggest that last quarter’s 0.5% reduction in GDP growth was a blip caused by the bad winter weather. Sterling rose accordingly and is now very strong against many currencies, including trading comfortably over 1.6 against the US Dollar.
The Australian Dollar has also been performing very well lately. It has maintained its strength despite the floods and storms in Queensland. The Reserve Bank of Australia raised its annual growth forecast for 2011 to 4.25% which is up from the November prediction of 3.75%. Consumer prices are also expected to increase by 3%, up from a previous estimate of 2.75%. This has led to expectations of further interest rate increases this year, which will cause the Australian Dollar to strengthen.
In other news he Pound has made large gains against the South African Rand in recent weeks. It is now at its highest level for 11 months. Sterling is up against the Rand by 14% so far this year. Anyone looking to purchase Rand may wish to consider moving funds now.
