BOE minutes quells momentum for rate rise

The Bank of England minutes, released today showed that the MPC has not come any closer to raising rates. The vote as expected showed the split remaining at 6-3, with Spencer Dale & Martin Weale voting for a 25 basis point rise and Andrew Sentance for a 50 point rise. Data this month has shown the economic recovery stalling somewhat, and the surprise drop inflation (although probably temporary) should be enough to postpone any rise in interest rates.  The Pound is being pushed around by the Euro-Dollar pair, which has rebounded from the lows yesterday after strong earnings from IBM, Intel and Yahoo boosted risk appetite in the Asian session. Euro data is fairly light today, German PPI for March is the highlight but we do have a Spanish bond auction at 10.30 today. It will be interesting given the backdrop of increasing probability of Greek restructuring, if investors force up Spanish borrowing costs, or the ECB decides to intervene by buying bonds itself. Overnight we have also had comments from a senior member of German Chancellor Angela Merkel’s CDU party saying he will vote against the ESM, and suggesting there is enough opposition within Germany to vote the legislation down. The comments seem to have mostly passed under the radar, but are strongly Euro negative and worth watching over the course of the day. One would have expected the S&P downgrading of the US outlook to negative from stable to push up US rates. But there was almost no reaction. Whether this reflects S&P’s standing in the market post crisis, or the fact that the Fed is the only buyer of Treasuries currently is difficult to assess. But the Dollar has reacted negatively, and may come under further pressure this afternoon if existing home sales data fails to impress.