Foreign Exchange: Pound Weakens As Expectation Of Continued Low Interest Rates Grows

Published: 23 June 2011 By MoneyHighStreet Staff Leave a Comment

The Pound traded down towards 1.12 against the Euro as the prospect of UK rates remaining at a record low for the foreseeable future grows.

Foreign Exchange Pound Against EuroNot only against the Euro, the Pound also declined heavily against all of the 16 most actively traded currencies yesterday.

The Pound weakened as the minutes from the Bank of England’s last policy meeting showed that only two members voted to increase interest rates in June. Only the chief economist Spencer Dale and policy maker Martin Weale kept up their recommendation for an immediate 25 basis point increase to combat inflation, which has risen at the fastest pace in more than two years.

Ben Broadbent, who replaced Andrew Sentance who left the MPC on 31st May, seems to have adopted a more dovish stance than his predecessor, voting to keep rates unchanged at 0.5%.

The UK currency traded down towards 1.12 against the Euro and 1.6050 against the US Dollar.

The Pound may trade under 1.10 against the Euro over the coming month, with the ECB preparing to raise the benchmark lending rate in Europe on the 7th July.

According to the minutes, several members of the MPC considered the possibility of further quantitative easing if downside risks to medium-term growth materialised.

It is not inconceivable that given the recent tone of the second quarter data that the UK economy may contract in the three months to June, as the key sectors continue to slow.

Overall there’s reinforced expectations that interest rates will remain at ultra-low levels this year.

Short-sterling futures rose as investors continue to curb bets on higher interest rates with the overnight interbank average suggesting policy makers will leave rates unchanged until April 2012.

The UK currency also declined against the US Dollar overnight, falling to a new 12-week low. This was in anticipation of a report from the Confederation of British Industry which is expected to show that retailers saying that sales volumes increased outnumbers those reporting declines by just 13 percentage points.

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Any analysis and/or forecasts are provided to help understand market conditions and developing trends. Readers are wholly responsible for their own trading decisions.

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