Interest rate day. The Bank of England are expected to keep interest rates on hold whereas the European Central Bank are expected to increase rates by 0.25% as they view inflation as their top priority. Any different from these and the markets will be very surprised. Here in the UK we had the release of disappointing industrial output figures which showed it falling by 1.2% in February when compared to January. Year on year it increased by 2.4%. The previous day we had had better than expected service data which highlights how mixed the UL recovery is. If you want to reduce your risk call in now as come lunchtime we could be seeing some very unpredictable movements in exchange rates.

Portugal has done the inevitable and asked for a bailout from the ECB. Not before time is how the markets view it. Given it was clearly expected the effect on the euro has been minimal. Now we wait and see if Spain is the next domino to fall. The market view is that this is unlikely given the steps that the Spanish have taken to sort themselves out but given the extent of the problems this could be wishful thinking in the medium to longer term. So if you are selling euros now may be a very good time to do this.

The US$ went to 14 month low against the euro. The expectation of increasing interest rate differentials supported the euro as it is unlikely the US will increase their interest rates any time soon. The US also has the possibility of government shut down as agreement can’t be reached on the next budget. Not a disaster in its own right as it has happened before but with debt reaching extreme levels it does seem time for the US to get their house in order.

Australian unemployment continues to fall hitting 4.9% which given their flooding and Japans earthquake and tsunami shows a degree of robustness for the Australian economy.

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