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.

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
newsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
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

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker