The broad based buying of risk continued yesterday with commodities, equities and high yielding currencies all higher in the session. The FTSE managed to close above 5000 for the first time since October of last year, only 200 points shy of its close the day before Lehman Brothers bit the dust last year, and with the DJIA only 5% off the key psychological figure of 10,000 the equity bulls will be looking for more gains in the coming weeks.

Data yesterday was largely inconsequential although the UK’s trade balance was better than expected with demand from abroad up 5% showing an increase in the pace of the global recovery. The Fed’s Beige Book was also largely bullish with 11 of the 12 regional Feds reporting ‘signs of improvement’ with only the St. Louis Fed reporting negatively.

The key driver of the pound and probably all financial markets today will be the Bank of England announcement due at noon. We are predicting no change in the bank rate of 0.5% and no change in the amount of asset purchases either for a couple of reasons. We believe that the Bank of England is reviewing this on a quarterly basis and not monthly and therefore any increase would not be forthcoming until November plus Tim Besley who voted for the rise last month has since left the MPC and we doubt whether the remaining members will float to the Governor’s side given the increase in economic prospects. Combined with a good amount of ‘sticky’ inflation in the UK economy at the moment we are confident of our stance.

As for sterling’s prospects in the immediate aftermath we are hopeful of a sterling rise and we would expect it to break to its range highs of 1.67 against the USD on positive feedback.

I will be presenting an online webinar at 14.00 BST to talk you through the details of the meeting and the prospects for GBP  and the Bank of England over the coming months. If you would like to attend and haven’t already registered please feel free to contact us on research@worldfirst.com titling your email ‘Webinar’ for an invitation.

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