The Bank of England marked the sixth anniversary of the introduction of its lowest ever interest rate by standing pat once again on Thursday, but an improving economy suggests rates are likely to rise at some point over the next 12 months. While no economist expects the Monetary Policy Committee to raise rates before a May 7 national election, given Britain’s record low inflation, there are signs that policymakers believe a rate hike could come sooner than markets believe. The Bank said on Thursday it was keeping rates at 0.5 percent, their level since the depths of the financial crisis. Financial markets currently price in a first rate hike around the turn of 2016, but two policymakers — Martin Weale and Kristin Forbes have warned that rates could rise in the near future if inflation shoots up from current low levels. Sterling rose 0.16 cents against the euro to €1.3812, and fell 0.36 cents against the dollar to $1.5234.
The European Central Bank said it will start printing money to buy bonds next Monday and delivered a robust economic outlook that will make it hard to extend the plan beyond its envisaged Sept. 2016 end-date. The ECB is embarking on the programme of quantitative easing (QE) with a view to raising euro zone inflation from below zero back towards its goal of just under 2 percent, and to helping buoy economies across the 19-country bloc. The euro zone’s central bank has said it will buy 60 billion euros (aprox’43 billion pounds,) a month until Sept. 2016 or until inflation is pushed backed towards a target of close to but below 2 percent. The devaluation has proved a powerful form of stimulus, even if the euro-zone’s inflation rate is still languishing at -0.3pc. The euro slumped yet further after he confirmed that there would be no retreat from the original plan to buy €60bn of assets each month, mostly sovereign bonds. It touched an 11-year low of $1.10 against the dollar. The pound has reclaimed all the ground lost against the euro since 2007, closing at €1.38 on Thursday.
The dollar held pole position in Asia on Friday as bulls wagered a looming U.S. jobs report would add to the chance of rate hikes there, even as the European Central Bank embarks on a trillion euro campaign of bond-buying. Analysts polled by Reuters expect U.S. payrolls to have increased 240,000 last month and the jobless rate to have ticked down to 5.6 percent from 5.7 percent. The recent run of U.S. economic news has been mixed at best, leading analysts to steadily downgrade forecasts for growth this quarter. A strong jobs report could offset all that and give the Fed reason to stick to its tightening timetable at the next policy meeting on 17 March. Another healthy job gain, particularly if accompanied by another relatively firm gain in average hourly earnings, would go a long way toward solidifying expectations for “patient” being removed from the March statement and increasing the perceived odds of a rate hike in June. Yesterday, San Francisco Fed chief John Williams said he thought that by mid-year it would be time for the Fed to have a serious discussion about tightening. The dollar index .DXY traded at 96.334, having climbed as far as 96.593 – a high not seen since September 2003. It was also firm on the yen at 120.00 and held hefty gains on a broad range of emerging market currencies..