MARKET REPORT FRIDAY 11TH APRIL 2008
Good Morning,
Yesterday the market focus was on key central bank decisions and statements, though none represented a major surprise to the markets. The Bank of England yesterday cut the Bank Rate by 25bp, to 5.00%, as had been expected. In the statement accompanying the decision, the MPC noted that inflation is anticipated to rise in the near term, reflecting higher food and energy prices plus the effects of weaker sterling. Such expectations remain a concern and may impede the MPC’s ability to cut rates aggressively going forward. The Committee however judged that “the availability of credit appears to be worsening” and that “prospects for output growth abroad have deteriorated”, factors that should help to alleviate inflationary pressures.
The ECB left rates on hold yesterday, but were less hawkish in the accompanying statement than was anticipated. The market is now pricing in chance of a 25bp rate cut in the last quarter of 2008. Whilst continuing to stress upside risks to inflation, the ECB focused more of its attention on the financial market turmoil and how the drag on sentiment could last longer than it had originally expected. The Euro leaped to an all-time peak against the Dollar of $1.5915, but gave up gains following Trichet’s comments.
This week market attention has been on Euro strength, as it reached a new all-time high against the USD and broke through the 1.25 level against GBP. Currency moves have been consistent with an increase of risk aversion, centred on the pessimistic outlooks for the
It is an exceptionally quiet day in terms of data releases. Today the G7 finance ministers and central bankers meet, but this is unlikely to prove very important for FX markets. Economists do not expect any major comment on the FX side as the depreciation in the USD, at least so far, has arguably been consistent with relatively weak economic fundamentals.
Michael Ince
Senior Trader
First Rate FX
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