The currency blog

The Bank of England and the European Central Bank are announcing interest rates today with both decisions expected to be no change. BoE Governor Mervyn King has emphasised the need to pull back on public spending and privately welcomed the cuts planned in the Government emergency budget later this month. With this is mind it is unlikely the Monetary Policy Committee will deliver any significant monetary changes until the exact combination of cuts and taxes is revealed.

Jean-Claude Trichet, the ECB president, is also unlikely to make any changes to existing policies. Having moved ahead with its quantitative easing program as part of its EU stabilisation scheme released in May the only thing of merit will be Trichet’s post announcement press conference. Trichet is likely to be grilled about the implications of the region’s debt crisis and the decline of the single currency over recent months. Both Portugal and Germany’s bond auctions passed without incident yesterday, but it is important to note that the cost of borrowing for perceived ‘at risk’ countries in the Euro-zone continues to rise.

The news was a welcome boost for the Euro/Dollar which has rallied this morning from an overnight position of 1.1980 overnight to a current position of 1.2056.

Over to the US and Fed Reserve chairman Ben Bernanke was not particularly bullish about the US economy’s prospects and estimates average growth figures of 3-4% in the next year. Bernanke said the economy had made an “important transition” to relying less on government support, his comments with regards to unemployment suggests that an interest rise is not on the radar any time soon. “A significant amount of time will be required to restore the nearly 8.5 million jobs that were lost” he told the Budget Committee. This was coupled with the news from a report within the Feds Beige book, which described improvements in labour conditions in all twelve Federal Reserve Districts but in many cases this was described as “modest”.

Cable rallied yesterday and today as a result of this bearish sentiment rising from 1.4430 to 1.4595 at the time of writing. Interestingly analysts are debating if the BP/US fall out would effect the pair and so far this seems unfounded given the past 12 hours of trading.

In terms of significant US data for the rest of the week, tomorrow we will get a monthly insight into US consumer demand and confidence with a 0.2% growth figure widely expected.

Discuss on this on the Currency Exchange Forum