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As was expected both the Bank of England and the European Central Bank held their respective interest rates yesterday although the price action in the euro would suggest a cut to the uninitiated. The single currency slammed lower as although Jean Claude Trichet used his code words of “strong vigilance”, suggesting a rate rise in July, the market had expected a revision higher of inflation expectations. What they got was a downward revision to growth for the EU through the rest of 2011 and 2012.

Trichet also had to deal with questions over how his inflation fighting policy would affect the peripheral economies who find themselves crushed under the weight of huge debts. He responded by saying that the ECB “are contributing to the prosperity of all countries concerned, without exception.”. So a decision to raise rates next month, although not confirmed actually caused the euro to slip and we find EURUSD back into the 1.44s and GBPEUR above 1.1250.

Moody’s were also on the wires as Jean Claude Trichet was speaking with warnings on the periphery. The ratings agency said that they see ‘the default risk for peripheral Europe rising’ and that of countries rated CAA1 (this means you Athens) 50% have defaulted in the past. It is likely we see a technical default from Greece soon as any type of restructuring or reprofiling to change the terms of a loan is a technical default.

The Bank of England has become a lesson in futility with no communication due from the MPC for 2 weeks. When the minutes arrive we expect to see one less vote for a raise, given the absence of Andrew Sentence, and the remainder of the board to talk about the uncertain economic recovery and the danger of trampling on the green shoots. Sterling was helped by some trade data although it seems like we’ve reached a bit of a sticky patch on imports of late which would fit with the notion that consumers are overstretched at the moment. Some commentators had forecast that we would start to see the impact of the Japanese earthquake on the numbers however it seems that these will be shown in May’s figures as a result of the significant time lag. Imports will probably stay weak throughout the summer as consumers wait on the impact of the government’s austerity measures however exports should strengthen as British producers benefit from the weak pound.

It is yet another day when inflation is the inflation is the main topic on traders’ minds. German inflation data this morning has shown that prices are moderating slightly whilst wholesale prices are also falling. This may have been to a moderation in oil prices through the past few weeks, something that may be confirmed by the UK numbers at 09.30. PPI is expected to rise by 0.3%.

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Latest exchange rates at time of writing