Thursday 5th June 2008
Interest Rate Announcements are in the Spotlight
Yesterday, the GBP continued to decline against the Euro and USD as the UK purchasing mangers’ index for the services firms unexpectedly fell. The report implies the economy is the weakest since the last recession, and whilst Governor Mervyn King has not ruled out a UK recession, faster inflation is making it harder to cut borrowing costs.
With inflation firmly in the headlights, the majority of the MPC is expected to vote in favour of leaving rates on hold at 5.00% today. The ever dovish MPC member David Blanchflower will no doubt go against the grain and argue for a rate cut. Personally I think that the gentleman (although learned) is looking for attention.
It was once the flavour of the month but the Euro may now be in the eye of the seller. Both the purchasing managers’ index for the services sector and retail sales figures for the Euozone disappointed on the downside. Today, it is expected that the ECB will leave rates steady at 4.00%. All ears will be on the post-meeting press conference, in which ECB President Trichet will be forced to comment on the topic of price stability versus deteriorating growth.
Meanwhile the USD held on to its recent gains after Bernanke once again commented on the inflationary impact of a falling USD. Market consensus seems to be that while it looks unlikely that the Fed will raise interest rates any time soon, this probably means that the downside for the USD has become more limited and reinforces the growing emphasis on inflation concerns within the Fed as risks to growth appear to have eased.
Enjoy the day.
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