Interest and exchange rate forecast - June 2012

Interest and exchange rate forecast - June 2012

Decisions, decisions

Economic Analysis

11 June 2012

As the Eurozone crisis rumbles on, so too does the broad trend in euro depreciation, which has lost more than 15% against the US dollar over the past 12 months.

Despite the uncertainty about the single currency and a gloomy economic outlook, neither the Bank of England (BoE) nor the European Central Bank (ECB) chose to change policy stance at their recent meetings. And we expect the US Federal Reserve to follow suit later this month. This is in contrast to other central banks such as those in Australia and China which have stepped in to offset the headwinds from slowing economies.

Nonetheless, we continue to expect the BoE to provide further stimulus in the second half of the year, though it could take a further deterioration in the Eurozone before others join the party.

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