Pound remains flat after rates left on hold

Good Morning. The Bank of England and European Central Bank both left rates on hold yesterday as expected. Rates this morning are as follows:

  • GBP/EUR 1.1074
  • GBP/USD 1.5037
  • GBP/AUD 1.6678
  • GBP/NZD 2.1805
  • GBP/CAD 1.5522
  • GBP/JPY 134.23
  • GBP/ZAR 11.231
  • GBP/CHF 1.6195
  • EUR/USD 1.3579

Bank of England
The Bank of England has kept interest rates at a record low of 0.5% for the 12th consecutive month. The decision was widely expected by economists, who believe that any rise in the cost of borrowing could damage the UK’s fragile economic recovery. Also as expected, the bank has not pumped any more money into the economy under its quantitative easing (QE) programme – for now at least.

The lack of more QE meant the pound did not fall, but then it didn’t gain either, and remained largely flat through the day. Figures released last week showed that the UK economy grew by 0.3% in the final three months of 2009, compared with an initial estimate of 0.1% growth.

Although the 0.3% growth in the final quarter of 2009 was stronger than previously thought, the Bank believes that continued economic growth is not yet guaranteed. Threats of a double-dip recession are unquestionably more serious in the near future than risks of higher inflation, and so the pound remains weak.

European Central Bank
The ECB also left rates on hold as expected. The Euro weakened in the afternoon however, on comments from the ECB president and others regarding the debt situation in Greece. Greece’s Prime Minister George Papandreou is due to visit German Chancellor Angela Merkel in Berlin on Friday, in what could be a key meeting to decide what, if any, European assistance Greece receives. He will visit France to meet President Nicolas Sarkozy soon afterwards.

The heated discussions continue, with German media suggesting that if they give Greece money, they should give Germany Corfu or uninhabited islands. This did little to please Greece given the history of said islands in WW2.

These problems with Greece won’t go away, and it seems that there will be some sort of bailout plan that is keeping the Euro weak.

Summary for GBP/EUR rates
If it wasn’t for the debt problems in Greece, I believe the pound would be near parity against the Euro. Sterling is the weakest major currency at the moment, and rates are at record lows across the board. It’s the Greek debt situation that’s weakening the Euro, and it may be that once a plan is agreed, the single currency will become more stable. To protect against a falling market, contact us today to discuss our contract types such as Stops and Forwards.

Have a great weekend.

Today’s Data
UK – Halifax House Prices
Ger – Factory Orders
US – Non Farm Payrolls
US – Earnings

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