BoE and ECB held interest rates yet again
10/Feb/2012 • Currency Updates•
BoE and ECB held interest rates yet again at 0.5% and 1% respectively. Ultimately, this highlights a pessimistic view on the UK and Eurozone, indicating that consumer spending is still far off where it should be.
Yesterday, BoE announced plans to pump another £50bn of stimulus into the economy through quantitative easing. To an extent this highlights a stronger UK economy than predicted as there were initial forecasts suggesting that QE would’ve been at £75bn. This is due to stronger manufacturing input than predicted, growing by 1% rather 0.2% as predicted. Furthermore, the trade in goods deficit narrowed by a far greater amount than predicted. Exports rose 0.9%, reducing the deficit to £7.1bn from 8.9bn, instead of £8.6bn; further assisted by imports falling by 4.6%. Trade figures were boosted by record levels of oil exports to both EU and non-EU countries. Exports of consumer goods, excluding cars, were also higher with an increase of 22% to China.
The Euro climbed yesterday after Greece finally reached terms on austerity plans. However, eurozone minsters dismissed the proposed package of a reputed €3.3bn as incomplete; lenders are demanding a futher €325m in further governments budget cuts. Despite strong optimism that a deal will be reached, Greece’s high unemployment rates of 20.9% (48% youth unemployment) and manufacturing contracing 15.15% in December from a year earlier and 11.3% decrease in industrial output, it is hard to comprehend how Greece will continue to pay off their debts in the future, let alone in March. Nonetheless, the single currency climbed 0.3 per cent against the Dollar and 0.2 per cent against the pound yesterday. Moreover, German government bonds were up 3 basis points to 2.01% on their 10-year Bund yields.
Equity markets on both sides of the Atlantic showed a muted response to news of the Greek deal. The S&P 500 closed up at 0.15% in New York. This happened despite positive news on the US labour market from data showing a 15,000 fall in initial jobless claims to 358,000 last week. Also, 10-year Treasury yields were 2bp higher at 2.03%. Crude oil also rose by more than $1 to above $118 a barrel; potentially indicating inflation years to come.