Interest rates likely to be held

Published: 04 April, 2011

The Bank of England meets this week and the expectation is for interest rates to be kept on hold as the Monetary Policy Committee wait to see how the UK economy is being affected by the government's austerity cuts.

Currency Rates

EURO/GBP - 1.1362
US$/GBP - 1.6157
CHF/GBP - 1.4909
CAN$/GBP - 1.5542
AUS$/GBP - 1.5555
ZAR/GBP - 10.8510
JPY/GBP - 134.901
HKD/GBP - 12.5664
NZD/GBP - 2.0986
SEK/GBP - 10.1871
US$/EURO - 1.4217

Economic data to be released this week are producer price inflation figures which are expected to show increasing input costs and industrial production for February which is forecast to show an annualised increase of 4.3%. So don't expect sterling to show a resurgence against the euro and the commodity backed currencies this week. In fact the trend seems to be for further weakening.

The euro seems to be the markets favourite at the moment despite the Irish having to increase their banks bailout funds yet again and Portugal on the edge of requiring a bailout. The reason for this is that the European Central Bank are expected at this weeks meeting to increase interest rates by 0.25%, The reason for this is their desire to fight inflation which is too high. Economic data released this week by Germany, the engine of euro zone growth, are industrial production and industrial orders which are both expected to be positive.

US economic rhetoric has changed quite dramatically as their economy seems to be moving forward and unemployment falling. Talk of further quantitative easing seems to be replaced by talk of increasing interest rates. Minutes of the last Federal Reserve meeting are released this week and will make for interest reading to see if there was any discussion about an exit strategy. But lets not get our expectations too high as the problems in the US are still extensive. Prices are holding around the US$1.60/£1 level.

The commodity backed currencies continued their strong run and have seen significant gains against sterling following the rise in risk appetite as markets stabilised following the Japanese earthquake and tsunami. This week the Australian Reserve Bank meet and are expected to keep interest rates on hold as their economy continues to recover from the floods they experienced earlier this year.

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