Weekly Market Update 24-02-2011
 

Mid-week market update

The main focus this week has been the continuing problems facing the Middle East-with Libya leading the headlines following worldwide condemnation of the way pro-democracy protestors are being treated & the ensuing effects it’s having on the financial markets & oil prices.

There has been other news this week though: on Monday the pound did find some support as Martin Weale commented that a small rate hike of 0.5% may reduce the need for a bigger rise later & he is now the second MPC member to vote for an interest rate rise (along with Andrew Sentance).

By Tuesday, the continuing problems in Libya stoked safe haven interest which mostly benefited the USD & CHF. A deadly earthquake in New Zealand & Moody’s downgrading of Japan’s AA2 credit rating further supported the USD & CHF.

ECB council member Yves Mersch became the latest Central Banker to voice concern about inflation raising the prospect of an interest rate hike by the ECB. Sterling fell against the USD as investors reduced risk exposure.

The key data yesterday was the minutes from the last BoE monthly meeting which showed that a third member now, Spencer Dale (the Bank’s chief economist), has joined Andrew Sentance & Martin Weale in calling for a rate hike. Sterling moved higher against the dollar following the minutes but later lost momentum.

This will be a major area of focus over the next few months as the ongoing debate between economic recovery and a rate hike seems to be splitting the MPC and will still continue to be a major factor in influencing the pound. In simple terms-the fear is that a rate hike is needed to curb inflation but a rate hike could also be seen as a hindrance to economic recovery

The US dollar’s safe have status also came under threat as soaring oil prices & continued violence in the Middle East & N. Africa triggered fresh concerns about the US economic recovery

This week’s ranges

GBP-EUR: 1.1721 to 1.1926

GBP-USD: 1.6100 to 1.6262

GBP-AUD: 1.6011 to 1.6246

GBP-NZD: 2.1211 to 2.1786

GBP-ZAR: 11.39 to 11.62

GBP-CAD: 1.5893 to 1.6135