Friday, February 11, 2011

Sterling Falls as Rate Hike Appears Less Likely

Sterling fell 0.7 percent to $1.5984 in early afternoon trading in London today following the Bank of England’s decision to hold interest rates at the current level. Opinion is swiftly moving to the view that there will not be an interest rate hike in the near-term and especially once the impact of the government’s planned spending cuts takes effect.

“The argument for a much stronger pound is not a good one based on current rates policy,” said Steve Barrow, the London- based head of research for Group-of-10 currencies at Standard Bank Plc. “At the moment the economy is still sufficiently vulnerable for inflation to come down. On that basis, one would tend to favor a scenario where rates only go up towards the back end of the year.”

Source: Bloomberg

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