As Japan looks to rebuild its infrastructure following the earthquake and tsunami it is believed that the sovereign debt will increase as the cost estimated at around 50 trillion Yen (£372bn) will need to be found. The rating agency Standard & Poor’s yesterday cut Japan’s sovereign debt rating to negative.
This morning saw the US Dollar reach a three year low against other major currencies ahead of the Federal Reserve meeting tonight. No change is expected with the QE2 program continuing and the ultra low interest rates remaining.
The European Central Bank looks set to increase the interest rate further this year following the 0.25% rise this month, giving a new momentum in “carry trades” (Investors borrow in a low-yielding currency to invest in higher-yielding assets or currencies).
The UK first quarter GDP figure released at 9.30 today showed that the UK continued to grow at a very slow pace with the figure coming in (as the markets expected) at 0.5% an improvement on the fourth quarter 2010 (-0.6%).
Sterling has had a difficult time against the 16 most actively traded currencies, trading mid 1.12’s against the Euro and 1.65 against the Dollar. It looks like Sterling will remain in this area with expectation of the BOE raising interest rates this year looking less likely every day.
In an unprecedented move by the Central Bank of Kenya to drain liquidity from the market the Shilling gained 0.3% against the US Dollar yesterday. Wilson Mutai, a trader at African Banking Corp., said “Banks are forced to sell dollars after the central bank mopped up shillings.”
