The pound gained yesterday morning on the news that a third member of the Bank of England’s (BoE) Monetary Policy Committee (MPC) voted for an increase in UK interest rates from the historic 0.5% low but the upturn proved to be short term. It is now falling across the board on a variety of factors.
Spencer Dale, the BoE’s chief economist, joined Andrew Sentance and Martin Weale in voting for a rate hike. He and Weale voted for a 25 basis point rise to 0.75% from 0.5%. Sentance, meanwhile, who had been calling for a 0.25% rise for several months now, demanded a 0.5% increase. The other six members of the MPC, including governor Mervyn King, voted to maintain rates at 0.5%. One member, Adam Posen, voted to increase the asset purchase programme (more commonly referred to as quantitative easing) by £50 billion to £250 billion while the other eight members called for it to stay at £200 billion.
The British Bankers’ Association (BBA) reported that the number of mortgages approved last month was down 21% from January 2010, as conditions in the UK housing market continue to be subdued.
The US dollar came under pressure as expectations of a rate hike from the European Central Bank (ECB) and the BoE increase. It also tumbled against the Swiss franc as its safe haven appeal faded.
Strong German economic data this week and comments from ECB council member Yves Mersch who voiced concern about inflation also pushed up prospects for an interest rate hike by the ECB.
The pound has reached a 5 ½ month high against the NZ dollar as the earthquake, likely to cost at least $12 billion in insurance costs alone and the heightened Middle east tensions increase risk aversion in the markets.
Commentary by Tony Redondo
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
