CURRENCIES

THE POUND is expected to be little changed this week as investors weigh the chances that the Bank of England will cut interest rates at its May meeting.

Investors got a heavy dose of economic data last week, some of it hinting that the economy may be strengthening. Fewer people than forecast were out of work, wages rose more than predicted, and retail sales rebounded. Inflation also came in above the Government's target.

Yet a report on Friday underscored the fragility of the economy. First- quarter gross domestic product edged up only 0.1 per cent, not enough to convince investors that benchmark rates will hold at the present level. Minutes from the Bank of England's April meeting suggested they may be right.

"We wouldn't be surprised to see another quarter- or half-point cut," said Stuart Kinnersley, chief investment officer at Nikko Global Asset Management.

On Friday, the pound rose to $1.6178, up a third of a cent from a week ago. Sterling was little changed at pounds 0.6579 per euro, holding to a near 7 per cent gain against the EU's currency so far this year.

Economists are split over whether the rate-setting Monetary Policy Committee will lower rates when it next meets on 5 and 6 May. Eight of 15 analysts surveyed expect rates will hold, while seven said the bank will trim borrowing costs another 25 basis points. "The data last week argues for the Bank of England being on hold [in May]," said Michael Hume, an economist at Lehman Brothers.

As the signs of growth accumulate, investors are scaling back their expectations for coming rate cuts, according to the interest-rate futures market. They now anticipate three-month rates at 5.19 per cent by June, up 4 basis points from a week ago. Rates are now at 5.32 per cent. "The window of opportunity for more rate cuts is getting smaller," said Neil Parker, an economist at Royal Bank of Scotland.

Minutes from the Bank of England's April meeting, released on Wednesday, suggested interest rates will fall later this year even if policy makers refrain from a May easing. Analysts are citing the strength of sterling as one reason. Sterling has risen over 5 per cent against the currencies of the UK's major trading partners this year.

This week's trade balance report will reveal how much a strong pound is hurting exporters. Figures on the March trade balance with countries outside the EU and February's overall balance are released on Tuesday.

The dollar was little changed against the euro after Nato officials rejected Serbia's proposal for a resolution to the fighting in Kosovo on Friday. The prospect of an end to the air strikes initially boosted the euro, which has fallen more than 2 per cent since the bombing started.

"Unless something more substantial comes from Milosevic, we'll be in a range of $1.0690 to $1.0590 for each euro," said Per Norr, a trader at Den norske Bank. For the week, the euro fell 0.40 per cent against the dollar and the yen fell 1.15 per cent as Japanese officials warned a strong yen could squelch any economic recovery.

Further weakness in the euro could call European monetary leaders to action. The French Finance Minister, Dominique Strauss-Kahn, said further euro weakness would be undesirable as it could make euro-assets unattractive to investors.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, DJ Taylor
How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

How to make your own Easter egg

Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

Bill Granger's twist on Easter Sunday lunch

Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
Joe Marler: 'It's the way I think the game should be played'

Joe Marler: 'It's the way I think the game should be played'

The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

Cricket World Cup 2015

Has the success of the tournament spelt the end for Test matches?
The Last Word: Justin Gatlin knows the price of everything, the value of nothing

Michael Calvin's Last Word

Justin Gatlin knows the price of everything, the value of nothing