The Bank of England has today announced as expected that monetary policy will remain on hold. Interest rates will stay at 0.5% and Quantitative Easing is to remain at £200Bn. This was widely anticipated by the markets yet was met with volatility. The pound subsequently rallied against the Euro reaching 1.1842 in trade this afternoon. The market will probably consolidate before a move further upwards in trade tomorrow.

Markets are still speculating that the Bank of England will need to raise interest rates to combat inflation and keenly await the CPI and RPI figures due next Tuesday. According to Credit Suisse overnight default swaps the market has priced in at least a 0.75 point rise by the end of the year. The pound looks bullish against both the Euro and the Dollar despite the fundamental outlook for the Uk economy being decidedly uncertain.

The Pound tested the psychological 1.60 level and rejected quickly in trade today, we will probably see a retest of this mark despite the market currently being net long on the pound vs the dollar. It would appear the market believes inflationary pressures will have risen in the last month ahead of Tuesdays announcement.

The ECB has reported today in their monthly report that monetary policy remains appropriate yet repeated that risks for inflation could move to the upside. Economists expect inflation to rise 1.9% this year. This would put its inflation levels on par with UK inflation expectations.

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Best Regards
Luke Zorab
Torfx Currency Dealer