ECB and BoE keep monetary policy on hold, as uncertainty over Greece remains

Tom Tong09/Nov/2012Currency Updates

EUR

Euro fell to a two-month low against the dollar (and other majors) following the announcement by EU finance ministers to delay a decision on whether to give Greece its next round of aid for “weeks”.

Further to this, in his speech, ECB president Mario Draghi said he expected economic growth in the common currency area to remain weak. Europe’s central bank left its benchmark interest rate at 0.75 percent at its policy meeting in Frankfurt today, broadly falling in line with expectations. Draghi also hinted that ECB aid to Athens “is by and large done”, further complicating the efforts for Greece to find up to €30bn needed to plug the financing gap should Europe and the IMF agree to give the nation more time to meet its fiscal targets.

GBP

Sterling made gains for the second day running versus the euro. This came on the back of news that the Bank of England halted expansion of its bond-buying program and kept its key interest rate at a record low of 0.5 percent.

The pound also gained against most of its major counterparts after the nine-member Monetary Policy Committee, led by Governor Mervyn King, kept its target for asset purchases at 375 billion pounds ($599 billion), ending its third round of so-called quantitative easing.

USD

Exports from the U.S. climbed to a record in September, contributing to an unexpected decline in the trade deficit that gave the world’s largest economy a boost at the end of the third quarter. Trade balance fell by over 2bn to a better than expected figure of -41.5bn. Adding to this, unemployment claims for September were also down.

However, in the wake of hurricane Sandy this figure will not continue to trend downwards.

All eyes still remain on the looming fiscal cliff, where White House and Republican lawmakers face pressure to reach a solution to the looming budget crisis after a non-partisan agency detailed Thursday how inaction would push the U.S. economy back into recession next year, and unpredictable investors continued to drive stocks lower.

Africa

The Kenyan shilling was steady against the dollar on Thursday but traders said it could come under pressure in coming days after the central bank cut interest rates by 200 basis points on. Citing declining inflation and slowing economic growth, the Central Bank of Kenya (CBK) on Wednesday slashed its key lending rate to 11 percent. It began easing policy in July but Wednesday’s cut was less than the record 350 bps reduction in September.

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Written by Tom Tong

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