Forex News

Focus for this week from European Central Bank ECB rate and Bank of England Rate.
Analysts were united in forecasting that on Thursday the ECB will leave its key interest rate at 4 percent - where it has stood since last June - and the Bank of England will hold at 5 percent.

The ECB has stressed its strict mandate to fight inflation in resisting pressure from politicians and others over recent months to cut rates.

Rate cuts can stimulate the economy, but if done at the wrong time can worsen inflation.

The European Union's statistical agency, Eurostat, has estimated that yearly inflation in the 15-nation euro zone again hit 3.6 percent in May - far above the ECB's stated 2 percent goal for an acceptable level.

"Stable prices are essential," ECB President Jean-Claude Trichet wrote in a special May 29 bulletin marking his bank's 10th anniversary.

He argued that controlling inflation protects the value of everyone's wages, and that "delivering price stability and being credible in its delivery over the medium term is one of the preconditions for sustainable growth and job creation."

BOE’s position is the same with ECB, which faces the need to keep inflation in check, amid soaring oil and food prices. There were high hopes that the Bank of England would cut interest rates as house prices are sliding and the economy is suffering from the global credit crunch. But inflation level is still too high.

April's inflation number shocked both analysts and the MPC, showing a jump in the annual rate to 3.0 percent, a full percentage point above the central bank's target.

It is almost certain that ECB and BOE will hold their rates. The question increasingly ask by market players is, until when? Financial markets are pricing in a rate rise by the year-end in England and the euro zone.


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