Sterling slips as interest rates kept on hold

Published: 11 March, 2011

Sterling slipped yesterday after the Bank of England kept interest rates on hold at 0.5%.

Currency rates

EURO/GBP - 1.1600

US$/GBP - 1.6047
CHF/GBP - 1.4977
CAN$/GBP - 1.5618
AUS$/GBP - 1.6027
ZAR/GBP - 11.0880
JPY/GBP - 132.74
HKD/GBP - 12.5066
NZD/GBP - 2.1827

SEK/GBP - 10.244
US$/EURO - 1.3834

With many not expecting an interest rate hike until May at the earliest, some believed there might be an outside chance of an interest rate hike at the meeting. Earlier in the day, the pound did experience some strength against the euro after Spain's credit rating was downgraded. Whilst inflation is an issue and markets are expecting an interest rate hike soon, the Bank of England are notoriously conservative and are unlikely to change much soon. The UK recovery is a little shaky, but ultimately we are in a better long term position than Europe and the USA. It is expected that sterling will recover later in the year as Europe's debt issues come to the fore again and the UK starts to outpace the US recovery.

In the euro zone, the euro slipped against the US dollar and sterling on news early yesterday morning that Spain's credit rating had been downgraded from Aa2 to Aa1 with a negative outlook. Euro zone debt problems are starting to come to the fore again, and there is nothing like a credit downgrade to do just that. However, interest rate expectations are likely to keep the euro supported against the pound and US dollar.

In the USA, the US dollar benefited from increased risk aversion as fighting in Libya escalated with Colonel Gaddafi's son stating the time had now come for full scale military action against the rebels. In addition, US jobs data came in far worse than expected with figures showing that 26,000 more people claimed for unemployment this week and the trade deficit widened.

Elsewhere, a massive earthquake has hit Japan causing a large tsunami. The Japanese yen has come under pressure already this morning - falling against the US dollar and seeing volatility against other US dollar currency pairs.

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