Sterling slipped against the US dollar and euro on Thursday after the Bank of England kept interest rates on hold at a record 0.5% and investors speculated that it might call on further Quantitative Easing to boost a faltering UK recovery. Manufacturing output rose 1.8% in May, after a 1.6% drop in April
Industrial output, but this did little to change overall market expectations that the Bank of England will leave interest rates at a record low 0.5 percent for some months to come. Market expectations suggest that interest rates will now stay on hold well into 2012, raising the prospect that sterling could be used as a “funding currency” in the same way as the Japanese yen – i.e. borrowed cheaply to invest in higher yielding currencies. This could see sterling plummet over the coming months, so call in now to protect yourself.

In the Euro zone, the European Central Bank increased interest rates by 0.25% as had widely been expected, taking base rates in the region to 1.5%. In addition, the euro gained against the US dollar after ECB President Jean-Claude Trichet eased collateral rules to help local Portuguese banks in the wake of a panic inducing credit rating downgrade earlier in the week. German industrial production came in higher than expected and today is a lighter day for data but call in to prevent any adverse market movements impacting on upcoming payments you may have.

In the USA, strong jobs figures helped investors look to riskier assets and sell the US dollar and as such the US currency dropped. Private sector employment increased last month and the number of people claiming unemployment benefits fell by more than expected which helped boost risk appetite ahead of today’s ‘headline’ non-farm payroll number, which is seen as the major measure of unemployment in the USA. Analysts are expecting to see the number of jobs increase by 90,000 for last month, lending strength to the view that the US recovery is poised for a surge in the 2nd half of 2011. Call in now for a live exchange rate.

Elsewhere, the Australian dollar stalled earlier in the week as the Reserve Bank of Australia kept interest rates on hold and held off from signalling furter rate hikes later in the year. In addition, China raised its own interest rates for the 3rd time this year in an attempt to curb a potential bubble as inflation and growth surge ever onward. This had an impact on riskier currencies, so ensure you protect yourself by speaking to one of the team sooner rather than later.

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