The pound found a measure of support yesterday after the Office for National Statistics (ONS) reported that record exports helped shrink Britain’s trade deficit in January. The goods trade gap shrank to £7.1 billion from £9.7 billion in December. Analysts said that the reduction in the trade deficit is most likely to be due to temporary factors rather than signalling a long-term trend.
Co-incidentally, the euro came under pressure as ratings agency Moody’s cut the credit rating of both Greece and Spain as tensions about the euro zone sovereign debt crisis resurfaced. Portugal managed to get its biggest bond auction in two months away but at a rising cost.
Overnight, the Reserve Bank of New Zealand surprised the market by cutting the cost of borrowing by 0.5% to 2.5%. The market had been expecting a 0.25% reduction to try and help the New Zealand economy recover from the Christchurch earthquake last month.
All eyes are on the 12 noon lunchtime announcement today by the Bank of England’s Monetary Policy Committee on UK interest rates. Despite inflation, as measured by the government’s favoured CPI index being over 1% above the government set 2% target for the last 10 months, analysts are predicting that UK interest rates will remain unchanged at 0.5% as the MPC remains divided between the ‘hawks’ who want at least a 0.25% increase to combat the rising inflation levels and the ‘doves’ who remain concerned that the UK economic recovery is simply too fragile to withstand a rise, however modest, in borrowing costs.
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.”
