Another Sterling Surprise - The GBP was able to recover some of yesterday's losses after Bank of England policy maker Martin Weale joined Andrew Sentance in voting for a rate increase this month, and officials said the balance of risks to inflation had moved “upwards,” according to minutes of the Jan. 13 rate decision released today. Keep in mind that the BOE members would not have known that the economy contracted and given that in yesterday's speech by Bank of England Governor Mervyn King indicated that he was in no rush to raise rates , its hard to see how much interest this would be to the markets. Meanwhile, the Euro reached its strongest level against the USD in more than two months after German import-price inflation hit its highest level since October 1981 fanning the perception that interest rates will rise sooner in the euro zone than in the U.S. German import-price inflation accelerated to 12% in December, more than 10.8% that was expected. Also boosting the Euro was yesterday successful bond auction for the European Financial Stability Fund, which the Japanese government snapped up more than 20% of. In Asia, the USD remained in a tight trading range near a three-week low against the Yen after U.S. President Barack Obama proposed a partial spending freeze. In last night's State of the Union speech, Obama proposed a partial halt to spending increases that would save $400 billion from the budget in the next decade. This proposal and a promise to cut corporate tax make it more difficult for the Federal Reserve to raise interest rates. No change in monetary policy in expected in today's Fed decision, but they may acknowledge a recent improvement in the U.S. economy. It will be interesting to see how the market will react to a possible change to the Fed statement. In Canada, the CAD recovered some of yesterday losses after Tuesday's weak inflation report as most major stock markets and commodities rose on optimism the global economic recovery will continue.
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