BoE and ECB Interest Rate Decisions today

Thursday 12th January 2011

Good morning. Today we’ll look at the Pound Sterling forecast against other major currencies such as the Euro and USD. The Pound fell to a near 1 year low against the US Dollar yesterday. Against the Euro the Pound also ended the day down.

Trade balance figures were worse than expected, but the main reason was repositioning ahead of today’s announcements by the Bank of England and European Central Bank. The below charts shows how rates moved throughout the day yesterday:

~Currency Movements on Wednesday 11th January~

Bank of England (BoE) announcement today

Today is a very important day for the Pound. At 09:30am we will see the latest manufacturing and industrial production figures. This is followed by an announcement at 12:00pm by the BoE on interest rates and Quantitative Easing (QE).

Most in the market expect rates to be left on hold, and no further QE stimulus. There is a small chance further money will be pumped into the ailing economy however, and it is this that is keeping the Pound in check against other currencies.

Trade balance figures were released yesterday and were slightly worse than expected, pushing the Pound slightly lower. This morning figures will be watched closely and if they are very poor, it could push the case for another round of QE.

It’s an outside chance, but if it does happen expect the Pound to fall sharply. If you don’t want to risk a drop, consider placing a Stop Loss order, so if rates do fall your currency will be bought at a pre-agreed level of your choice. This protects you against a drop, while allowing you to continue making gains should rates remain stable.

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European Central Bank (ECB) announcement today

Following the BoE decision, the ECB follow at 12:45pm with their interest rate decision. Again, I expect them to hold rates at 1%, but in recent months they have made 2 cuts in interest rates. Further cuts could weaken the already poor Euro. There are also some inflation and production figures for Germany/EU today.

Following the interest rate decision, the ECB president will give a lengthy press conference afterwards, where he will give an outlook of the EU economy. Watch this closely as quite often any positive or negative comments can significantly affect the GBP/EUR rate.

So will Pound/Euro rates continue to rise?

What will happen going forwards largely depends on if there is a resolution to the debt crisis. Some analysts think rates could continue to climb, while others cite weak UK growth as a reason to believe this spike is short term.

Nobody can predict the markets, so the only real forecast can be based on past performance. This is the 5th time in 3 years the GBP/EUR exchange rate has broken through the €1.20 level, and each and every time it has been followed by a sharp downward correction. While nobody can foretell whether the same will happen in 2012, the hard facts are this: GBP/EUR is at a near 16 month high, and nobody knows if or when global markets will stabilise.

If you need to buy or sell Euros and don’t wish to gamble on exchange rate movements, contact me today about the different ways we can help protect against any adverse exchange rate movements that could prove very costly indeed.

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