Friday 8th August
The Bank of England delivered as expected yesterday; the base interest rate was left on hold at 5.00%. In two weeks time the minutes for the meeting will be released. The market will keen to see the voting split amongst the 9 members. Will it be similar to the bias that is showing a 0.50% cut in the next 12 months, as anticipated by the overnight index swaps?
The USD is the main story this morning. As mentioned in yesterdays commentary, the greenback bulls are about and their charge continued in earnest in overnight trading. EUR/USD and GBP/USD have rocketed south. Comments from ECB President Trichet proved to be the catalyst for the latest rally. It appears that growth concerns in the Eurozone are weighing heavy on the Presidents shoulders. With oil continuing to ease off there is a conviction that US will shortly see better economic times.
The ECB left interest rates steady at 4.25% yesterday. An initial strengthening of the Euro was followed by massive selling. Once again President Trichet’s comments that followed the rate announcement proved to be the market mover. The prime mandate of the ECB is price stability. However, the hawkish tone and comments about growth concerns were enough for the market to start pricing in rate cuts within the next 12 months.
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