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BoE and ECB rate decisions eyed

BoE and ECB rate decisions eyed

The EUR has strengthened against the major currencies this morning amid speculation that global central banks might take measures to avoid a further slowdown in their respective economies. Moreover, investors are closely eyeing interest rate decisions from the Bank of England (BoE) and the European Central Bank (ECB) and Spanish bond auctions due later today.

As Central banks are high up the agenda today, the ECB is expected to hold interest rates when it meets at Ljubljana today, as the waiting game over a potential Spanish bailout continues. If Spain asks other eurozone members to rescue its economy, that would clear the way for the ECB to start buying government bonds under its new plan aimed at reducing borrowing costs. The ECB’s main refinancing rate is already at a record low of 0.75pc and analysts expect it to save any rate cut until the new bond programme has started. Mario Draghi, ECB president, will hold a press conference at 1.30pm. Although he has stressed that the responsibility is now on governments to take action, he is nonetheless likely to be quizzed on his assessment of Spain’s predicament.

The BoE, which is due to make its announcement at 12pm, is expected to shy away from increasing its bond purchase programme. The bank is also expected to keep its benchmark interest rate at a record-low 0.5pc. But another cash injection later this year remains a safe bet in the eyes of many economists because the recovery looks feeble, government spending cuts continue to weigh heavy, and the dangers from the unresolved euro zone crisis loom large. Anything other than a ‘hold’ decision from the BoE would likely see the Pound plummet across the board.

On the FX markets the Euro seems to be gaining momentum against the major currencies and is currently trading against the sterling in the range of 1.2441 – 1.2464. EUR/USD is trading at range of 1.2911 – 1.2958.

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