Sterling Euro Rate Dips As ECB Talks Down Interest Rate Cut

Published: Friday, 4 May 2012 09:00 BST - Written by Ben Hughes

STORY LINK Sterling Euro Rate Dips As ECB Talks Down Interest Rate Cut

As ever, the future direction of interest rates was never far from the minds of currency market participants during yesterday’s session.

European Central Bank President Mario Draghi’s press conference, which followed the ECB’s announcement that it is maintaining its key lending rate at 1.00%, was generally judged to have been supportive for the euro. The primary headline-grabber from Draghi came when he announced that the Bank’s policy committee had not discussed trimming interest rates. Draghi also observed that the region had made good ‘fiscal progress’, suggesting that he is happy that the collective medicine which the eurozone’s more debt-challenged states have taken in recent months, is beginning to have the desired effect. However, the taste which it has left in the mouth of European workers remains far from pleasant, as Wednesday’s eurozone employment figures testified.

Meanwhile, investors holding Sterling-denominated assets were also forced to amend their interest rate expectations following yesterday morning’s troubling UK PMI Services sector survey for last month, which showed a surprise cooling in activity levels in this key area of the British economy in comparison with the month before. The Services numbers hint that the unexpected upward blip for UK inflation last month was an ‘outlier’ and that the rate of British price rises may ease over the remainder of 2012.

Elsewhere, market whispers suggested that the Reserve Bank of New Zealand may be set to trim its domestic interest rates from their current level of 2.5%, at which it has stood since March of last year. The rumours follow unexpectedly weak New Zealand labour market data, released during Thursday’s Asian session, which showed that joblessness in the Pacific state had risen from 6.3% in Q4 2011, to 6.7% in the first three months of this year. This saw the GBP NZD exchange rate to 2.0224, its highest level since before Christmas.

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