Currencies

THE POUND is expected to be little changed this week, trading near a two-month low, on speculation that the Bank of England will not raise rates when it meets on Wednesday and Thursday.

"We certainly don't think rates will go up," said Adrian Schmidt, senior economist at Chase Manhattan Bank. The pound "could dip below DM2.90" if rates are not raised, "though much of it is priced in already", he said.

On Friday, the pound was little changed at DM2.9104. Against the dollar it was little changed at $1.6365 from Thursday. The pound is down about 4 pfennig from a week earlier, after a survey showing a manufacturing industry slump convinced many investors that the Bank of England may not need to raise rates again this year to cool the economy and slow inflation.

The yield on the September short sterling futures contract, a measure of interest rate expectations, has fallen 5 basis points to 7.79 since the survey, suggesting growing expectations for unchanged rates.

The majority of economists expect the central bank will not raise rates this week. They also predict the bank will leave the benchmark rate unchanged for the rest of the year.

If interest rates do not rise, neither does the money-market return on pound-denominated deposits. The benchmark lending rate stands at 7.5 per cent, its highest since November 1992. It has been raised six times in the past 14 months.

"We think interest rates have topped out," said Jeremy Hawkins, the chief economist at Bank of America.

He said the survey "was not so much about manufacturing but about the weakness spreading to the service sector" which accounts for about three- quarters of total economic output.

He added that a service industry survey from the Chartered Institute of Purchasing and Supply due on 5 August would boost expectations that the Bank of England will not increase the benchmark lending rate.

He expects the pound to fall to DM2.82 and $1.55 by the year end.

"The pound is a one-way bet," said Iain Lindsay, head of capital markets strategy at BMO Nesbitt Burns.

He also expects the pound will decline to DM2.82 by the year-end as "whatever happens next week will be the peak for rates".

The dollar rose to a six-week high against the yen after the Japanese Finance Minister, Kiichi Miyazawa, said that economic performance rather than market manipulation by governments, should determine the yen's value.

His comments suggest that Japan will not sell dollars to prop up the yen or ask other countries to do so.

"Under usual circumstances this would be a reasonable policy but with the Japanese economy falling off a cliff it does raise the question of how quickly the yen could fall," said Ken Wattret, an economist at Paribas Capital Markets.

He predicts that the yen will weaken to 150 per dollar by the end of the quarter.

The dollar rose as high as Y144.80 in New York on Friday afternoon. Against the mark, it slumped to DM1.7792 from DM1.7822 on the expectation that economic reports out of Germany this week will provide proof that growth there is increasing and will support prospects for higher interest rates.

For the week, the dollar rose 2 per cent against the yen and was unchanged against the mark.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • 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: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk