ECB keeps rates at 1.00%

In a scheduled announcement, the European Central Bank has kept its interest rate at a historic low of 1.00%. It was widely anticipated interest rates would be kept on hold, as the central bank continues to try and stimulate eurozone economies in the face of the global economic slowdown.

We await further details about the quantitative easing programme announced by the ECB last month as its President, Jean-Claude Trichet, is due to give a statement shortly. With low interest rates and a quantitative easing programme only recently announced, Caxton FX is expecting the euro to come under increased selling pressure in the medium-term.

BoE keeps rates at 0.50%

In a scheduled announcement, the Bank of England has kept its interest rate at 0.50% for the third month in a row. The central bank was widely expected to keep interest rates on hold following their unprecedented monetary easing since October last year. Despite the base rate remaining at a historic low, and a quantitative easing strategy already being deployed, credit conditions remain tight in the UK for businesses and individuals alike. The Bank of England is due to complete its £125 billion quantitative easing programme next month.

Pound finishes down against the euro

The pound weakened by 0.72 cents (0.62%) against the euro yesterday, to close the day at 1.1518.

• In early trading yesterday sterling hit a six-month high against the euro, as investor confidence that the UK economy may be recovering continued. A Nationwide survey showing UK consumer confidence was at its highest level for six months fuelled the pound’s early gains, as did better-than-expected UK Services PMI figures released mid-morning. It came in at 51.7 this month, well ahead of the 49.4 predicted, and also an improvement on the 48.7 recorded previously. The index’s rise above the crucial 50 mark – with a score above that level signalling growth – was a major boost to hopes of an economic recovery, with the services sector making up about 70% of the British economy.
  
• However, after lunch the pound weakened considerably against the euro, as near 2% falls on equity markets and profit-taking from the pound’s recent rally dragged the UK currency down. The FTSE 100 eventually finished the day down 93.6 points (2.09%) at 4,383.42.
  
• In trading so far today the pound has continued its slide against the euro, as investors brace themselves for today’s important announcements by t he central banks of both regions, who are due to give their latest interest rate decisions. The Bank of England will announce their decision first at 12.00 BST, followed by the European Central Bank at 12.45 BST.

Sterling falls by over 2.5 cents against the US Dollar

The pound weakened considerably against the US dollar yesterday, falling 2.62 cents (1.58%) to close the day at $1.6315.

• In early trading yesterday sterling jumped to a seven-month high against the greenback, as improved sentiment about the UK’s chances of economic recovery continued. This view was bolstered yesterday morning after the release of a surprisingly positive Nationwide consumer confidence survey, which showed people were more confident now than at any time in the past six months.
  
• In addition, better-than-expected UK Services PMI figures also buoyed demand for the riskier pound as the index came in at 51.7 points, up from 48.7 last month. The rise above 50 – the level signalling growth – was particularly significant because the recession-battered services sector makes up roughly 70% of the UK’s economy.
  
• However, news that monetary officials in China, Japan, India and South Korea would keep buying US Treasuries even if America’s credit ratings were cut bolstered the dollar mid-afternoon. Some of the dollar’s slide in the past month has been attributed to speculation that the US may have its credit rating downgraded, so these positive comments were particularly well-received, sending the greenback into positive territory mid-afternoon.
  
• The dollar’s gains were further extended in late trading yesterday after some traders booked profits from sterling’s rapid rise over the last ten days. Falls on the FTSE 100 also weighed on the pound late on, as it eventually finished over 2% down on the day.
  
• In early trading so far today the pound has weakened further against the greenback, as investors turn their attention to today’s important Bank of England interest rate decision, which is due at 12.00 BST , shortly followed by a statement. In the US, Unemployment Claims figures are out at 13.30 BST and Fed Chairman Ben Bernanke is due to give a speech at 13.45 BST.

The euro weakens by over a cent against the US Dollar

The euro weakened by 1.42 cents (0.99%) against the US dollar yesterday, finishing the day at $1.4158.

• In early trading yesterday the single currency weakened against the dollar, following comments from officials that a downgrade in the US sovereign credit rating would not put Asian central banks off buying US Treasuries. Those with a direct knowledge of Asian policymaking said there were no alternatives to the liquidity afforded by the dollar.
  
• The dollar also rose on the back of worse-than-expected US ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI figures. After their release some investors speculated that, contrary to popular sentiment recently, we may not really be on the cusp of a global economic recovery. They therefore looked to the perceived safety of the greenback to protect their capital.
  
• Falls on global equity markets did little to halt this flight to safety, with both the DOW and NASDAQ suffering falls. However, it was the confirmation from Asia that the dollar remains the world’s reserve currency of choice which really drove the greenback’s gains throughout the day.
  
• In trading so far today the euro has clawed back some of yesterday’s losses, as investors continue to digest yesterday’s less positive data and consider whether it was a reality check or just a blip on the road to recovery.
  
• The European Central Bank is to deliver its latest interest rate decision at 12.45 BST today, whilst in the US Unemployment Claims figures are due out at 13.30 BST. Fed Chairman Ben Bernanke is also due to speak at 13.45 BST.

Aussie falls on weak data

The Australian lost ground against sterling yesterday, as weak data out of the US hurt global optimism for a global economic recovery.

• The weak data led to investors taking a breather from buying riskier assets, including the high yielding aussie.
  
• Sterling was given some support after the release of surprisingly strong UK services data and consumer confidence rising to a 6 month high.
  
• Investor focus today will largely be on rate decisions by both the Bank of England and the European Central Bank.
  
• The BoE is expected to keep rates on hold, however investors will eye any further announcements on the bank’s quantitative easing programme.

Kiwi finishes down over 4 cents against sterling

The New Zealand dollar lost considerable ground against the pound yesterday after demand for risk appetite fell.

• Weak data out of the US saw equities and commodity prices fall yesterday, which in turn saw demand for higher yielding currencies drop.
  
• The kiwi's fragile economy was also exposed overnight with the announcement that prices for its top export, milk, had fallen.
  
• The government’s fiscal accounts showed a deficit NZ$7.69 billion, for 10 months, although this reading was better that what was forecast in last week’s budget.