httpvh://www.youtube.com/watch?v=6IoxLb8pXZ0

Central bank news was as expected yesterday with the Bank of England and the European Central Bank maintaining and raising rates respectively. Both were the consensus with some outliers, myself included, who were looking for the ECB to be more circumspect about the periphery. Only time will tell if this rate rise proves to be as misguided as the 0.25% addition the ECB voted for in the summer 2008, a few months before the first wave of the credit crunch hit the markets.

Granted, they are abiding by their mandate that inflation is above the ECB’s target of 2%, the latest figure was 2.6%, however most of this inflation is imported in the form of food and fuel. Wage price inflation has not been increasing in that part of the world and I think therefore a rate hike is not warranted. It won’t stop the price juggernaut the entire world is facing and will hurt those on the periphery more than it helps those in the core states such as Germany.

Further pressure will be put on the BOE today to raise rates when producer price inflation data is released at 09.30. The fact that the price of Brent crude is making new multi-year highs on a daily basis is only to increase this price pressure. A strong figure now, combined with a decent Q1 GDP release later in the month, will see the market increase the probability of a rate rise in May.

The US will be more in focus today than it has for the past few days as politicians battle to avoid a government shutdown. The democrats and the republicans have been scuffling over spending cuts to the Budget currently making its way through Congress. This is not weakening the USD however otherwise movements in the interest gained on swaps between the US government and corporate should have shifted; they haven’t.

Have a great weekend.

Latest exchange rates at time of writing