Bank of England leaves rates on enabling Sterling to rise against the Euro

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Yesterday's key data releases were from the Bank of England and European Central Bank who had their monthly monetary policy committee meetings, with both banks leaving interest rates on hold as expected at 0.5% and 1.5% respectively. With no move in interest rates, the markets were more influenced by the accompanying statements.

The Euro was the first to suffer, falling against most currencies, while Sterling found support after the Bank of England fended off calls to increase its quantitative easing program to give the sluggish UK economy a boost. Sterling was trading around £/€ 1.1355 prior to the Bank of England announcement only to jump up 1.5 cents shortly after the ECB announcement to close around £/€ 1.15.

In the US, unemployment claims rose slightly last week to 414,000, up from 412,000 the week before. This figure is reflective of the recent non-farm payrolls and unemployment number, where no new jobs were added in August. The trade deficit was slightly more encouraging, narrowing to $44.8 billion in July from a revised $51.6 billion in June.

Today, or rather tonight, the markets will be paying attention to President Obama speech to Congress on his package to create more job growth. His apparent $300 billion plan includes measures to reduce payroll tax for both employers and employees, as well as devoting funds for infrastructure projects at both federal and state level. It will be interesting to hear what the US Federal Reserve thinks of this plan at its next meeting later this month and whether it will see the need to assist the promotion of jobs growth through its own means. 

It will also be interesting to see what impact it has on the US Dollar which has had a pretty encouraging week, certainly against Sterling. On Monday morning, Sterling was trading around £/€ 1.6250; on Thursday afternoon, the rate reached £/$ 1.5912 - a gain of over three cents for the US Dollar, partly due to poor UK services and manufacturing data but also renewed concerns over the global economic recovery.

There is some second tier data today from the UK and US in the form of producer input prices and wholesale inventories respectively. Of more importance will be the G7 finance ministers and central bank heads meeting in Marseille for a 2-day meeting. The fragile economic recovery, sovereign debt crises, and exchange rate policies are likely to dominate the discussion. Have a good weekend.