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Central Banks: ECB and BoE

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Preview of May 8 meetings

Wed, May 7 2008, 14:57 GMT
by Marina Schiaffino

FXstreet.com


ECB and BoEThursday 8 brings BOE and ECB to the stage. The European Central Bank and the Bank of England will publish their monthly monetary policy decisions in a context of fast growing inflation, with strong currencies in both cases, and recent economic data pointing out to an acceleration of the economic slowdown. In such circumstances the odds are widely in favour of keeping interest rates on hold at 4% and 5% respectively.

BoE's MPC will feel the pressure for a rate cut to 4.75% after the 25 bp cut approved at lat month’s meeting. Nevertheless, the risk of feeding inflation, currently running at a 2.5% year on year pace, and with food and energy prices not giving any hints of moderation, committee member should be inclined against lower rates, which could add upward inflationary pressure as well as weaken the Sterling.

The ECB is facing quite a similar scenario, with Inflation growing at a 3.3% yearly rate, the Bank can not raise interest rates easily with the Euro running at the highest levels ever, harming thereby European exports and weakening business as well as consumer confidences further in the Euro Area.

Check the effect that the meetings have over the pairs in our Rates and Charts Section or compare the movements of the different banks in our World Interest Rates Table.

In-Depth Analysis: Fundamental

In-Depth Analysis: Technical

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Analysts' comments

  • · Ashraf Laidi, chief currency analyst at CMC Markets:
    "We certainly do not expect (ECB President Jean-Claude) Trichet to temper his persistent hawkish rhetoric as oil prices surge to new highs, but to shed more attention to the downside risks of the euro zone economy." - Thomson Financial News
  • · Lee Hardman, strategist at the Bank of Tokyo-Mitsubishi UFJ:
    "We think that there could be a rebound in sterling if the BoE keeps rates on hold as there is a one-in-four chance of a cut priced in, but we are still negative on the longer term outlook on the pound." - Reuters
  • · Hans Redeker, global head of forex strategy at BNP Paribas:
    "We believe that a BoE cut at this stage is unlikely, even given the recent deterioration in the UK data." - Thomson Financial News

Published on  Thu, May 8 2008, 09:48 GMT


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