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Interest rates not expected to rise at Bank of England meeting

Published:  10 February, 2011

The Bank of England meets today, with an expectation for more of the same; no interest rate increase and no increase in the quantitative easing programme.

The Bank of England meets today, with an expectation for more of the same; no interest rate increase and no increase in the quantitative easing programme.

Currency rates

EURO/GBP - 1.1761

US$/GBP - 1.6073
CHF/GBP
- 1.5462
CAN$/GBP
- 1.6017
AUS$/GBP
- 1.5978
ZAR/GBP
- 11.6875
JPY/GBP
- 132.805
HKD/GBP
- 12.5180
NZD/GBP
- 2.0924

SEK/GBP - 10.3661
US$/EURO
- 1.3662

Uncertainty arises from the high inflation figures we are seeing and from the contraction in the economy in the fourth quarter of last year. These two sets of economic data having conflicting responses. Inflation can be combated by increasing interest rates whereas recession requires expansionary economic policies such as quantitative easing. So if the BoE does make a surprise decision we will be in for a volatile time for sterling.

The European Central Bank needs to elect a new president soon. It was assumed that Axel Weber the head of the German Bundesbank would put himself forward. He has now ruled himself. The speculation as to why he did this is because he is against the ECB buying peripheral euro zone debt but political pressure is making this a more than likely outcome in the coming months. This view seemed to support the euro as the sorting out euro zone debt must be one of the ECB's key goals over the coming months.

No real news out of the US to influence US$ movements. A greater influence seems to be news elsewhere such as in the Middle East and in China. Against sterling it is holding above the US$1.60/£1 level which would be positive in the medium term for sterling to strengthen further against the US$.

For the commodity backed currencies pressure has been building following the recent increase by China to its interest rates to combat inflation. Clearly inflation is a very significant problem in China and as well as increasing interest rates we could see them increase requirements such as banks reserves. In the short to medium term we will see continued demand for the commodities produced by Australia, by Canada and by others. But longer term I suspect the real key will be whether or not the Chinees manage a soft landing as opposed to a disastrous hard landing.

Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service.

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