Pound Unchanged As BoE Leaves Rate Unchanged Will Trichet Follow Suit?
The Pound was virtually unchanged following the announcement that the BoE left their benchmark unchanged at 5.00% as they continue to weigh the downside risks to the economy against inflation rising to 3.8%. A housing slump that is approaching the worst levels in a quarter century has brought the British economy to the doorstep of a recession. The manufacturing and service industries shrunk in July and consumer consumption fell 3.9% in June.
After falling as low as 104 during trading yesterday, the Euro found a bid tone ahead of the ECB rate announcement, but failing to climb back above 1.500. The markets will be listening attentively to President Trichet’s post announcement press conference today for any indication on the ECB’s future bias. The central bank leader stated following last month’s 25 bps rate hike, that interest rates at a seven year high of 4.25% “will contribute to achieving our objective of price stability. I have no bias”. Those comments and subsequent one from other members have diffused earlier estimates that further tightening was forthcoming. The increase in credit costs has accelerated the decline in growth in the region, which lead to a dovish Trichet. However, Lufthansa’s pilot’s union earning a wage increase will amplify the MPC’s concerns over secondary effects of inflation, and continue the ECB’s staunch hawkish bias.
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08-11-2008, 02:40 AM
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