Sterling To Euro Exchange Rate In Limbo Ahead Of Today?s BoE Minutes And UK Budget Statement

Published: Wednesday, 21 March 2012 09:00 BST - Written by John Cameron

STORY LINK Sterling To Euro Exchange Rate In Limbo Ahead Of Today?s BoE Minutes And UK Budget Statement

The headline rate of UK inflation dropped to its lowest level since the end of 2010, official government figures, released yesterday, showed. The Consumer Prices Index fell to an annualised 3.4% in February, down from January’s monthly figure of 3.6%, suggesting that the Bank of England is managing to rein in the ravaging effects of persistent price rises on the British economy – good news for savers and those existing on fixed incomes.

However, the drop in the rate of UK prices rises was not as marked as analysts had been expecting. This provided some support for Sterling during yesterday’s session, as many market participants priced-in the possibility, no matter how remote, that the Bank of England may have to up domestic interest rates from their current record low level of 0.50% in order to dampen inflation.

Elsewhere, yesterday brought further evidence that the Chinese economy is started to show signs of a decrease in activity levels, as global mining conglomerate BHP Billiton issued a report which observed that output is dropping in the Chinese steel industry. This spelt bad news for the Canadian, Australian and New Zealand economies, each of which is heavily reliant on the export of raw materials to China in order to survive. Unsurprisingly, the Canadian, Australian and New Zealand Dollars all suffered pronounced losses against the low-yielders on the day, as a result of the news emanating from China.

Looking ahead, today’s session is likely to be dominated by Sterling movements, with the release of the minutes of the most recent Bank of England Monetary Policy Committee minutes at 0930hrs GMT. Pro-QE comments from members of the nine-man committee could spark a sell-off for the Pound, which could be accentuated if Chancellor George Osborne’s Budget Statement to Parliament this afternoon is light on substance.

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