Weekly Cypriot £ Rates and Comments - 6th August 2007

The Bank of England held UK interest rates at last weeks meeting. This was no surprise given the BOE increased rates at the previous meeting, the significant volatility in the equity markets and the major floods in certain parts of the UK in the last month or so. Sterling is still holding its own and the market still expects that we will see at least one further increase in UK interest rates by Christmas.

 

The Cypriot £ [Cy£0.857/£1] is pegged to the Euro. Therefore where the Euro goes the Cypriot £ follows. The European Central Bank kept Euro land interest rates on hold this week but come September the markets expect interest rates to be raised by at least 0.25%. This will support the Euro and Cypriot £ short term. However the Euro is still very strong against the US$ which is hurting Euro land exporters and as such we can expect pressure on the ECB to moderate their increases in interest rates. In fact France has been very vocal in wanting interest rates to be reduced.