Yesterday both the ECB and the BoE announced that interest rates are to remain on hold for the time being. Markets are however starting to price in future changes due to headline inflation rates currently coming in above target in both sectors. Jean Claude Trichet indicated in yesterdays post meeting press conference that interest rates will have to be reviewed despite problems with sovereign debt and liquidity due to mounting inflationary pressures. Data released this morning from the eurozone is expected to show that inflation has risen to 2.2% in the month of December.

The BoE will have also, almost certainly discussed similar problems in their meeting yesterday. A statement was not released with their announcement due to no movement in interest rates, so markets will now have to wait until the end of the month for the minutes from this meeting to be released. The pound gained ground against the USD, rallying from 1.5725 to 1.5890 in trade yesterday, this move can be attributed to trader speculation that the BoE may need to raise interest rates. Sterling was also supported yesterday by better than expected industrial production figures, these inicated that manufacturing output gained an impressive 0.6% in the month of November.

The Euro gained on yesterdays news and has gained overnight as traders buy back into the euro on the positive outcome of Spain and Italys bond auctions. Trichets comments from yesterdays ECB press conference have also helped the Euro gain from 1.20 yesterday morning to 1.1780 in opening trade this morning ‘GBP/EUR’, and EUR/USD moved from 1.31 and 1.34. It would appear that market speculators at least in the short term believe that the Eurozone has got their problems under control.

Todays focus will turn towards US retail sales and industrial production, at the moment it looks as though the current market trends will continue at least in the short term coming into the end of the week.

“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”

Best Regards
Luke Zorab

Torfx Currency dealer