Short sterling contracts

Short sterling contracts see limited reaction to the BOE's decision to leave UK interest rates on hold at 5.0%. September short sterling is currently up 0.005 at 94.11, from around 94.115 prior to the announcement, with December down 0.015 at 94.115, unchanged from pre-announcement trading levels.

The Bank of England left its Bank rate on hold at 5.0% Thursday, following a two-day monthly meeting of its Monetary Policy Committee.

The decision was broadly expected with all 23 economists surveyed by Dow Jones Newswires last week tipping the BOE to keep rates unchanged, as it seeks to prevent accelerating inflation becoming entrenched in public expectations.

In its quarterly Inflation Report in May, the MPC indicated that one further 25 basis point cut in the third quarter of this year, and a final cut to 4.5% by early 2009, would leave inflation slightly above the 2.0% target in the medium term.

Most economists believe that while the U.K. Bank rate still has further to fall, future cuts will be few and far between. But the Sterling Overnight Interbank Average Rate indicates investors believe there will be no further interest rate cuts this year, showing around a 30% chance that the central bank will raise rates by November.

The MPC last cut the Bank rate from 5.25% in April, following 25-basis-point reductions in February and December.

The Bank announced its decision without comment, noting only that the minutes of this week's meeting would be published at 0830 GMT on June 18.


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