Wednesday, March 5, 2008

More of them sound fundamentals

Soaring service sector puts new rate cut in doubt

Prices in the British service sector rose to a record high in February, reducing the likelihood a further cut to the UK interest rate when the Bank of England announces its decision tomorrow.

Posted by holding out @ 12:41 PM (590 views)
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4 thoughts on “More of them sound fundamentals

  • …………and yet the pound still drops against the Euro. I give up.

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  • The fall in the pound is partly due to falling mortgage lending volumes. Some banks were funding lending by borrowing Euros and converting to sterling, thus increasing demand for sterling on the FX market. I understand this carry trade is significant and partly explains how the UK’s trade deficit is funded. If mortgage lending falls further expect the pound to fall again. In an interview with an FX trader published in the FT the trader said they have calculated an 80% chance that the pound will reach parity with the Euro in the next two years! I can only guess how the media in this country would react if that event came to pass. Unfortunately the article has been pulled from their site so I can’t provide a link.

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  • Ted – any further information and realistic likelyhood of sterling going 1 for 1 with the euro would be useful as I have sterling savings.

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  • But the BoE is still committed to a downward trend for interest rates and whilst it continues to make that known Sterling will continue to fall. Currency traders will already have costed in the next quarter point cut whether it is is two months time or even a bit later than that. If the BoE had been doing its job properly, aggressively raising rates to fight inflation and making it known that no rate cuts were on the agenda, then Sterling would have held up above €1.40.

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