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The Bank of England is likely to leave rates on hold today for the 28th month in a row with the MPC still waiting for strong enough signs of the economic recovery before tightening monetary policy. The weakness of the manufacturing and services sectors as shown in recent industry figures plus the likelihood of a poor figure for GDP in Q2 only leaves inflation as a viable reason to raise interest rates. Unfortunately for those looking for the cost of borrowing to rise the increase in CPI to 4.4% has been mainly as a result of commodity price inflation and not as a result of wage negotiations in the UK. Until that changes, an increase in interest rates will do more harm than good in the short term. As such we expect no hold and continue our call for rates to stay on hold until February 2012.

To that end I would be stunned if we saw any change in interest rates from either of the central banks reporting today. As such we expect the Bank of England to be a non-event entirely. Trichet’s press conference is another matter entirely and we, alongside everyone else, will be waiting to see what code-word he uses today to suggest the ECB’s thoughts on inflation. ‘Vigilance’ over inflation is already priced in and we doubt we would see too much euro strength whereas if he uses ‘strong vigilance’ then euro should put on weight as traders price in an interest rate hike for the July meeting.

Sterling took a fair old dip yesterday morning after the ratings agency Moody’s stated that they may reevaluate their outlook on the UK’s credit rating if the terms and timetable of the coalition government’s austerity measures are not adhered to. GBP was quick to bounce back however after it became clear that this was not the ratings agency’s central scenario i.e. most likely outcome. Even so, it caps a good week for the Chancellor as he has been told twice now by independent bodies that the austerity plan is the way to progress.

Equity markets and the dollar were volatile yesterday in trade as it became clear that previously held tensions on the OPEC board were alive and kicking. At a summit in Vienna a Saudi chaired proposal to increase oil output was met with fierce protestations by the Iranian and Venezuelan delegates and the meeting ended in acrimony. Oil leapt to a new 5 week high on the news.

Apart from the central bank decisions (BOE at 12.00 and ECB at 12.45) we have US initial jobless claims at 13.30 which are expected to print at 419k continuing the poor run of Us jobs numbers.

Are you keen to learn more about the currency markets from our industry leading team of experts? If so, you’re in luck.

World First will be running a FREE 30 minute seminar, offering foreign exchange advice to SMEs – the life blood of the UK’s economy.

We’re interested in getting some discussion going and to assist SME’s in a tough market. We’re not here to sell to you.

Come and join us for a cup of coffee and a doughnut as we get to grips with some of the major issues facing small to medium sized business in the current climate.

Email Natasha.Farnworth@WorldFirst.com to RSVP

Date: Tuesday June 14^th at 17.00 in Central London

Latest exchange rates at time of writing