Bank of England, ECB cut interest rates. Euro, Pound fall in Forex Trading. | CountingPips Forex Blog

November 6, 2008 - Forex Economic News

Bank of England, ECB cut interest rates. Euro, Pound fall in Forex Trading.

The Bank of England announced the decision to cut its interest rate by 1.50 percent today to bring the rate to 3.00 percent from 4.50 percent. This rate reduction was much more than expected and the largest BOE cut in 27 years bringing its rate to its lowest level in over fifty years. Market forecasts were expecting a 50 basis point or half a percentage point reduction to 4.00 percent. The BOE had last reduced its interest rate by 50 basis points on October 8th Euro, Pound fall in forex trading in conjunction with major central banks around the globe to ease pressures of the credit crisis and plunging stock markets.

The BOE statement on the rate cut cited lower inflation levels and having seen "a substantial downward shift in the prospects for inflation" in the last couple of months while since September, "the global banking system has experienced its most serious disruption for almost a century." The statement also commented on the state of the UK economy, "In the United Kingdom, output fell sharply in the third quarter. Business surveys and reports by the Bank’s regional Agents point to continued severe contraction in the near term. Consumer spending has faltered in the face of a squeeze on household budgets and tighter credit. Residential investment has fallen sharply and the prospects for business investment have weakened."

Meanwhile, the European Central Bank also cut its interest rate today by 50 basis points from 3.75 percent to 3.25 percent. This rate reduction was in line with expectations as forecasts were widely calling for a 50 basis point cut. The ECB had last reduced its rate by 50 basis points when it also participated in the coordinated rate reductions with central banks around the world on October 8th.

Jean-Claude Trichet, the President of the ECB, commented in his press conference today that "Inflation rates are expected to continue to decline in the coming months, reaching a level in line with price stability during the course of 2009. The intensification and broadening of the financial market turmoil is likely to dampen global and euro area demand for a rather protracted period of time." Trichet also did not rule out any further rate reductions so we may look forward towards more easing in the ECB rate.

Pound, Euro fall verses Dollar and Yen in Forex Trading.

The euro has fallen today in forex trading against currency rivals, the U.S. dollar and Japanese yen. The EUR/USD has fallen over approximately 200 pips as the pair trades under 1.2740 today. The EUR/JPY has also declined today more than approximately 200 pips as the EUR/JPY trades under 124.90. The euro has also seen declines today verses the Swiss franc, Australian dollar and the New Zealand dollar.

The pound has declined against the U.S. dollar by approximately 100 pips at time of writing before 1pm ET. The GBP/USD has fallen to trading at 1.5801. Against the Japanese yen, the pound has fallen approximately 80-90 pips today as the GBP/JPY trades around the 154.80 level. Against the euro, the pound has gained ground by approximately 80 pips today as the EUR/GBP pair trades at 0.8067.

Today's Chart

EUR/GBP - The European Euro falls against the British Pound today in forex trading on a day that the European Central Bank reduced its interest rate by 50 basis points and the Bank of England surprised the market with a 150 basis point rate reduction(Daily Chart).

Today's Forex Chart

tags: interest rates, ecb, boe, forex trading

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