Sterling has begun the day trading stronger against the Euro and USD ahead of key interest rate announcements in the UK and the Euro zone. The Bank of England is not expected to change the current interest rate of 0.5% or level of quantitative easing (£275 billion) at least until February 2012 with developments in Europe likely to have a bigger impact on sterling. This was highlighted by Jane Foley at Rabobank who said “I don’t think the BoE is really going to produce an awful lot of activity today. That said, sterling may gain a bit of ground against the Euro if the ECB cuts…”
The Euro is trading down on the day against the pound whilst trading flat against the USD with the European central bank expected to cut the current rate by 0.25% to 1% in an effort to aid the current debt crisis. If significant developments are made in tomorrow’s meeting amongst European leaders and the current issues are resolved on the back of the summit then this is likely to benefit riskier currencies. The Euro is therefore likely to benefit from this risk appetite and rally against the USD in particular.
The US remains firmly out of the spotlight today as the market continues to focus on the outcome of the European summit and what sort of resolution this will bring. Whilst this is going on the US remains strong against the Euro trading within tight ranges and staying at the1.57 level vs. the pound. This afternoon will see the release of unemployment claims expected to be lower than last month, at 397k, we are also due consumer sentiment and the trade balance numbers tomorrow afternoon.