The pound fell over 1.5 cents against the euro yesterday but continued its upward trajectory against the US and Australian dollars.
As expected, the Bank of England kept interest rates and their Quantitative Easing (QE) budget unchanged with interest rates at a record low of 0.5% and QE at £200 billion.
Analysts will be looking out for the minutes of yesterday’s meeting, published in two weeks time to see which way the nine members of the Monetary Policy Committee (MPC) have voted given that recent data showed a continued rise in inflationary pressures with the cost of living rising at 3.3% in November, a six-month high and well above the government’s 2% target rate.
UK industrial production slowed in November despite another buoyant manufacturing contribution. Total output rose by 0.4%, compared with a 0.1% decline in October, but the figure undershot estimates of 0.6% growth. A recent survey by the Employers’ Engineering Federation (EEF) highlighted strong orders at present, especially from emerging markets, with most companies expecting a good 2011.
The pressure on the pound continued with successful bond auctions in Spain and Italy following Portugal’s auction on Wednesday and European Central Bank (ECB) chief Jean-Claude Trichet hinted at action to tackle rising inflation. He said the central bank remains “permanently alert” to the need for price stability, although analysts doubt rates will rise for a while so as not to derail the fragile economic recovery.
The pound had some respite against the dollar after an unexpected increase in US weekly jobless claims hurt the dollar. First-time unemployment claims rose 35,000 to 445,000 last week, a two-month high.
Today sees the release of a raft of US economic data including US advance retail sales for December, expected to show a rise of 0.8%, while year on year CPI is expected to increase to 1.3%. US Industrial production for December is also expected to have improved to 0.5% from 0.4% previously.
Sentiment continues to be negative on the Australian dollar as the drama and cost of the rebuilding of Queensland comes to light.
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.”
