In a choppy day for sterling / euro, the pound surged above the 1.10 mark in early trading following the announcement from Nationwide that house prices rose 0.9% in March despite many expecting that they would continue to fall. While it should be stressed that it is still too early to say that the housing market has turned the corner, the news proved to be a boost for sterling. We also saw equity markets rallying in the morning, which continued throughout the day as markets responded positively to the G20 world leaders agreeing a coordinated $1.1 trillion of funds being pumped into the world’s economy. By the end of the day the FTSE 100 was up 4.3%, whilst in Paris the Cac 40 jumped 5.4% and in Frankfurt the Dax finished 6% up. The risk appetite in the market was another boost to sterling as investors picked up higher risk currencies such as the pound.
However, the pound’s gains were tempered as the European Central Bank defied many forecasts and decided to cut interest rates by 0.25%, instead of the widely anticipated 0.5%. The smaller than expected cut ensures the single currency still enjoys a significant yield advantage over sterling and the single currency did strengthen somewhat over the pound as a result. However, the pound still finished the day higher against the single currency, as the central bank’s decision was made by consensus, as a split has emerged within the governing council. It is also interesting to note that Jean-Claude Trichet did not rule out cutting interest rates further and using unconventional means to rejuvenate the economy, similar to the quantitative easing that has been seen in the UK and the US of late. The ECB has now cut rates from 4.25% since October last year as the eurozone economy has struggled through the financial crisis, but their base rate still stands higher than many other major economies. The OECD has forecast that their economy as a whole would contract by 4.1% this year, despite the ECB’s worst case scenario being a 3.2% contraction.
Both the UK and the eurozone release their PMI services data this morning, for an indication of how the service sector is performing at present.
Interest rates have been cut very smartly over the past one year but job losses is still the most worrying factor for me.
ReplyDeleteI have a job and everyday I think that would my company issue a job cuts notice and if that happens would my job be safe. Phew man people who have already lost jobs can only think of my plight.