MPC votes to keep rates unchanged

A fairly quiet couple of days has meant cable GBP/EUR and
EUR/USD have all been stuck in a 50 pip range since Friday
indicating the market is operating purely on a fundamental basis.
Today’s data might finally prompt some movement.  Despite the
OECD predicting that Britain will grow 1.4 per cent this year and
accelerate to 2.4 per cent next year, the latest Bank of England
minutes showed a 9-0 vote in favour of no change to bank rates and
the asset purchase scheme. The main take away from today’s release
is that the MPC continue to ram home the point that interest rates
may not rise immediately once the unemployment threshold is met.
The OECD cut their previous forecast for global economy by 0.4 per
cent so British data remains positive. The caveat currently,
however, is that loose monetary policy and increasing house prices
are pushing us into growth and therefore we risk another debt
bubble which places a downside risk on the current recovery.

The most important announcement today will be FOMC minutes
meeting at 7pm UK time. Speculation that the FED will lower the
unemployment threshold to 6.5 per cent in conjunction with the
taper, and probably will accompany the normal rhetoric of moderate
growth and good general progress with the economy. According to a
survey compiled by Bloomberg, across 32 economists they predict the
FED will not taper till the March meeting and also until conditions
in the labour market start to improve substantially.

There’s been a fair bit of market chatter about negative deposit
rates and QE from the ECB. Most recently from ECB member
Constancio, stating that QE and just about everything else is on
the table to use. Yesterday he also added that credit in the
Eurozone is also declining. Although the ECB confirmed that the
strength of the euro is within a sustainable range and it’s not
their mandate to manipulate currency rates, you cannot help but
question their rather frequent negative releases.