Highly Volatile Foreign Exchange Markets, Interest Rates Held

A highly volatile day in the markets yesterday highlighted by the latest monthly policy decisions from both the Bank of England and the European Central Bank.

In the UK, the Bank of England (BoE) kept interest rates at their historic low of 0.5%, a rate held in place since March 2009. The BoE also kept its asset purchasing scheme, commonly known as Quantitative Easing (QE) unchanged at a total of £375 billion in Sir Mervyn King’s final meeting as Governor before he hands over to the current Bank of Canada Governor, Mark Carney.

Last month, King called for a £25 billion increase in the QE budget but was out-voted for the fourth month in a row.

In the euro zone, the European Central bank (ECB) also kept its policy unchanged, despite statistics showing a deepening recession in the majority of member states. The ECB President, Mario Draghi in his press statement tried to reassure the markets that a gradual recovery in the euro zone economy would take place as the year progresses seem to have riled investors.

In Germany this morning, the central bank the Bundesbank cut German economic growth forecasts and sees downside risks as the euro zone recession continues to weaken demand for German exports. Specifically, the German central bank cut the growth forecast for this year from 0.4% to 0.3% and also revised the 2014 growth estimate down from 1.9% to 1.5% whilst also lifting inflation forecasts from 1.5% to 1.6%.

Today sees the publication of key unemployment data from the world’s largest economy, the US.

This will further increase market volatility as the markets will then speculate on future Federal Reserve policy.

Overnight, investment bank Goldman Sachs predicted that the Reserve Bank of Australia will cut interest rates in July and then again in November to try and stimulate the moribund domestic economy.