Currency watch: UK rates remain static

The Bank of England held interest rates at 0.5% again this week, as expected, and quantitative easing was left unchanged.

The Monetary Policy Committee has struggled recently to assess official data signals correctly, especially after the news in February that fourth quarter growth declined by 0.5%.

The minutes of the last meeting showed three out of nine members voted for a rate increase. This could change as it was announced that Ben Broadbent is replacing Andrew Sentance on the committee, and his views are notably more hawkish.

The eurozone has been gripped by downgrades over the course of the week. First Greece got a ratings downgrade by Moody’s and then Spain dropped one notch with warnings of more notches to fall.

Portugal has not escaped unscathed from the attention, as bond markets put pressure on the country to seek a bail-out. Greek and Irish 10-year bond yields are at euro lifetime highs above 7.5% which Lisbon says is unobtainable.

Meanwhile the US dollar continues to struggle against oil prices and the Libyan conflict. An Arab league ministerial meeting will be held on Saturday to discuss the crisis, which could prove just the tonic for the dollar. However, there’s certainly no telling what will unfold in Libya during the next few weeks or what kind of impact it will have on the markets.
 
Jeremy Cook, chief economist at World First foreign exchange, 11.03.2011