| The pound reached its highest point against the euro since 9 January 2011 as concerns continue over the future of the euro amid speculation that France risks losing its coveted AAA credit rating imminently.Yesterday saw the publication of the minutes of the Bank of England’s Monetary Policy Committee (MPC) meeting from the beginning of the month. Policy makers voted 9-0 to keep interest rates unchanged at 0.5%, a level that has been in place since March 2009. Of more interest, the minutes of the meeting also show some members mulled over a further expansion of the MPC’s £275 billion asset purchase program commonly known as Quantitative Easing (QE), but only “in due course”. The current program expires in February 2012.The MPC members voiced concerns about rising unemployment and increased worries about the supply of credit due to continuing strains in bank funding markets. They were countered by others who noted the continued strength in import and goods price inflation, and the risk posed that inflation might be slower to fall than predicted during 2012. Dr Howard Archer, chief UK economist at IHS, predicted the Bank of England would announce a further £50 billion of QE in February, and added that a further £50 billion portion was highly likely to follow in the second quarter, most probably in May. |
The euro meanwhile remains under pressure, falling again against the other major currencies on Wednesday as the European Central Bank (ECB) announced that it would unleash €489.2 billion in three-year loans to banks across Europe. The ECB’s hefty injection of cash was a surprise to the markets on Wednesday and is also the biggest amount ever provided by the central bank in a single operation. The loan programme, known as longer-term refinancing operations, (LTROs) is equivalent to around 5% of euro zone gross domestic product.
This is significantly ahead of reported market forecasts of €293 billion. A total of 523 banks made loan applications. They will receive the money tomorrow.
US data continues to improve with existing home sales rising by 4% in November, reaching an annualized rate of 4.42 million, according to the latest data out from the National Association of Realtors (NAR).
According to Lawrence Yun, NAR chief economist, “more people are taking advantage of the buyer’s market. Sales reached the highest mark in 10 months and are 34% above the cyclical low point in mid-2010 – a genuine sustained sales recovery appears to be developing (…)”.
Meanwhile, the Swedish central bank cut its benchmark interest rate by 0.25% to 1.75% for the first time since 2009 on worries about the euro zone whilst their counterparts in Japan kept rates there unchanged as expected.
