Currency Update – Friday 5th March

Currency Update – Friday 5th March

Apart from the odd period during a crisis, central banks rate decisions are usually drearily predictable, and both the MPC and the ECB kept to the stereotype as neither made any change to any of their rates. The BoE announced that it was keeping both the interest rates and the QE program at current levels; they reverted to their previous laconic methods offering no further details so we will have to wait a couple of weeks, for the release of the minutes, to see how the votes went, although it is likely to votes were close to unanimous yet still finely balanced. The BoE are most likely still in a wait and see mode, and although the data hasn't been as strong as some people had hoped for the start of 2010, there have been some short term factors which have muddied the waters (most notably the weather and the rise in VAT) so it may take a little more time before we get a clear picture on the state of the economy this year.

The ECB also kept their rate on hold, but no-one could accuse them of being verbally reticent, and during their usual post decision press conference Trichet confirmed that the ECB would still be tightening and then withdrawing some of their technical liquidity measures into the year. There was no talk of rate rises, but if inflation responds as the ECB expect it to, by ticking up over the course of this year, then there may be some calls from the faint of heart in the third and fourth quarters. Of course Trichet was also asked about Greece and the prospects of a bail out package, and although he didn't give any details he did express his opinion that it would be 'inappropriate' for the IMF to bail out Greece, obviously preferring to keep it in house within the Eurozone. However there is still no details on any Eurozone bail out package, and one is unlikely to come from tonight's meeting between Greek and German politicians, and this is weighing on the Euro a little with the Pound ending yesterday a little higher than it started pushing up to sit around 1.1050.

The Pound also performed better against the USD, pushing up above 1.51 briefly yesterday, although it has slipped back down to around 1.5050, after fears over further Chinese monetary tightening and a lower than expected US jobless claims. You would be forgiven for thinking that the fears over Chinese monetary policy had died down, but market need little reason to worry at the moment, and comment from the Deputy Governor of the PBOC that interest rates would be raised at the 'appropriate time' was enough to reduce risk appetite and bring the Dollar a little higher.

The big event of today, as it is the first Friday of every month, is the US non farm payrolls. This month release is harder to predict than normal as parts of the US have been struggling with blizzard conditions, and there has been some heavy hiring for the US census. The range of forecasts move from -150k to +30k, and the unusual factors will allow a weaker figure to be blamed on the weather. Wednesday's ADP report came in relatively strong, so there is a good chance we'll get a decent figure today which could help global sentiment some of which may rub off on the Pound. The Us figures aren't the only release today, and we have just had the UK producer price index, however with the rate decision made yesterday they have caused few waves. The figures show factory gate inflation up to a 14 month high, as manufacturers attempt to widen their margins with input prices actually falling.. The Pound is likely to trade within a relatively tight range up to the non-farm payrolls, and decent figures there may give risk appetite and the Pound, a lift this afternoon.

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