Thursday, August 03, 2006

The U.K. and Europe raise rates

The U.K. surprised the markets this morning raising interest rates 25bp to 4.75%. The BOE cited:
Firm Growth
Limited Spare Capacity
Rapid growth of real money
High CPI

In Europe the 25bp was expected. Trichet (ECB President) was more hawkish then I expected and therefore left the door wide open for future increases in rates. This has caused the U.S. futures to sell off in sympathy but all depends on tomorrows number. As I have said the market (to me) seems to be looking for a weaker number. A stronger number would provide the FED with an excuse to raise rates once again. If this happens I look for the curve to flatten out (as the market should percieve this as the last upward move) and the dollar to get hit HARD.



Blogger Banker said...

The U.K. move was definitly a surprise to me. From the comments I can see them going again.

1:52 PM  

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