Central Banks leave interest rates on hold but Euro weakens

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It came as no surprise yesterday that the Bank of England monetary policy committee (MPC) left interest rates at 0.5%, the record low which it has been at since March 2009. Investors were so unsurprised interest rates were left on hold that Sterling was unmoved and remained unchanged against the Euro and US Dollar.

There was hardly any reaction to the European Central Bank's decision to keep interest rates steady at 1.25% either. Although investors predict there will be interest rate increases later in the year, they didn't expect any increase on this occasion.

Like Sterling, the Euro did nothing after the announcement. That changed though when ECB President Trichet began his press conference and said the ECB is "monitoring inflation very closely". This is a noticeable change from being "strongly viligant" which is the term Trichet used last month and signals that Euro interest rates will not be going up next month as previously thought.

These comments saw an instant market reaction as the Euro was sold and fell a cent and a half against Sterling as investors sold the Euro. Against the US Dollar, the Euro fell by more than three US cents on the day.

The Australian Dollar had a good day after the Reserve Bank of Australia raised its inflation forecast and said interest rates would go up "at some point". As ground-breaking news goes, it wasn't really up there but it was enough to encourage the Aussie to strengthen.

Today main data is the US non-farm payrolls; the most important indicator of US economic health and can easily provoke volatility in the markets is the actual figure is different from forecasts. A strong figure today could quite possibly encourage investors to extend yesterday's modest dollar upturn.