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Interested in interest?

Interested in interest?

Yesterday’s Monetary Policy Committee minutes were delivered and there is some subtext to the overall tone that is certainly worth examining. The vote to hold interest rates steady at 0.5% was unanimous. However, the minutes did reflect that two of the nine policymakers stayed ‘finely balanced’ on their decision to vote to hold or raise interest rates. The decision to maintain the asset purchase programme at £375bn was again unanimous.

The GBP reacted positively to the news and strengthened until close of play yesterday, in particular this strength was most marked versus the Euro with 1.4000s recorded briefly. Against the USD the Pound did not recover to the peaks we observed last week, but managed to remain steadier in the mid-high 1.5500s.

Negative inflation figures and low productivity remain the key headwinds for the British economic recovery. George Osborne has vowed to produce a ‘productivity plan’ as we approach the UK Budget, due in July.

US central bank members seem at odds over their views of the US economy but, one thing that can be largely agreed on is that June is too early to effect an interest rate rise. This potential rise in interest rates would be their first (and indeed the first of a number of key economic nations on a global scale). Among the points that remain contested is that the economy experienced enough of a slowdown following a harsh winter to be a concern and pose a risk to potential rate rises.

Banks did receive the billions in fines that were forecast to hit them this week. Among these, Barclays bank received the biggest ever fine imposed by the FCA of £284m. JPMorgan, Citigroup, Royal Bank of Scotland and Barclays were the banks reported to have pleaded guilty over forex rigging charges. This accompanies a loss of jobs for those in key positions at the banks and will take some considerable restructuring as well.

Today’s data includes UK retail sales, which has arrived as I write and shows positive figures for the UK. The GBP has reacted positively to this news showing an immediate gain. Today also, we expect the European Central Bank Monetary Policy meeting accounts and Mario Draghi speaking as well. Some US jobs and homes data is due today as well. It would be wise to watch the GBPEUR in particular today.

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