Well it’s the first Thursday of the first full week of the month and that can only mean one thing. Yes, it’s time for the Bank of England rate announcement today but don’t get too excited as I can pretty much guarantee you there will be no change in policy. Rates look set to stay at 0.5% with the Bank of England’s asset purchase level staying at £200bn despite some calls for this to be raised.
On the other hand there are rumblings that our European friends at the ECB could possibly raise rates today taking the European interest rate level from 1.25% to 1.50%. This could well be seen as a bullish move for the Euro and short term we could easily see the Euro strengthen back against both the Pound and US Dollar. Personally I can’t see this happening and think that the Euro will continue to lose ground short term albeit at a very slow pace. The danger of raising rates further in the current climate will only add pressure to Portugal, Ireland, Greece and Spain and their escalating debt problems. A rise in rates could push Spain close to requesting a bailout and the queue behind them getting even bigger.
Sterling didn’t disappoint yesterday and after Tuesdays positive PMI services data continued to make a small amount of headway against the Euro. With Manufacturing and Industrial production data out this morning a good set of numbers are needed to help Sterling continue its rebound. With the Euro under pressure after Portugal’s downgrade now could be an opportune moment to see Sterling get to a more realistic level against the Euro over the coming month and get back to last month’s 1.14/15 range.
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