Rates cut as expected

Interest Rate Decisions

BOE – 0.25% cut now 5% ECB – Held at 4%

Yesterday saw the release of the BOE (Bank Of England) and ECB (European Central Bank) interest rate decisions. Both ended up coming out pretty much as expected, although there had been the possibility of the BOE making a 50 basis point cut. It appears this must have been slightly priced into the market as throughout the afternoon sterling made gains against the Euro after record lows earlier in the day. As shown above Sterling did drop against most other currencies, but not with as much force as it has done in the past immediately following a rate cut.A cut in interest rates generally has a negative affect on the currency concerned, and a raise usually results in positive movement. This is mainly down to what is known as carry trading – where investors shift their funds over to a higher yielding currency in order to get a better return on their funds.

The BOE mentioned in their post decision statement that credit conditions had tightened, and that obtaining credit had become increasingly harder due to the current global credit crunch, they also highlighted possible inflation risks. Most analysts believe that the statement suggested a further drop for sterling in the coming months which is certainly something to take note of if you have an upcoming currency requirement. It appears that more growth boosting rate cuts are likely to be seen, although it doesn’t seem there is any urgency to follow the U.S with aggressive easing at this point."The statement left the door open to further easing, but didn't give any guidance on how fast or aggressive any future rate cuts might be," said Lena Komileva, G7 economist at Tullett Prebon."Having said that, of course structural UK fundamentals are more closely aligned with the United States than with the euro area. As a result of that, a combination of a continued dovish bias by the BoE versus a stubbornly neutral stance by the ECB is bound to weigh on sterling over the coming weeks."

With these rocky periods ahead, why leave yourself open to further losses on your purchase, many people have seen the dropping rate push their purchase way over budget over the past few months. Don’t let yourself get caught looking over your shoulder at where the rates used to be, talk to your account manager about securing a forward contract, where you can secure a rate for anything up to two years in advance on most major currencies, for a small deposit.

Today’s Data

Today we see a G7 meeting taking place at 13:00pm. This includes seven finance minister from industrialised nations including: U.S.A, France, Japan, Germany, U.K Canada and Italy. This meeting takes place several times throughout the year and is used to discuss economic policy, therefore can have a huge impact on the market as changes may be announced as to how the world are planning to deal with the current credit crunch.In these volatile times the smallest bit of data, or a slight hint in a speech can move the market quickly. If you are considering trading, but still do not have a trading facility in place, why not take two minutes out to register online at http://www.currencies.co.uk/open-an-account/ so that if the market moves in your favour you are set up to move immediately and catch your rate at the right time.Also due out on a relatively quiet day for Sterling and Euro data we see the U.S Import Price Index at 14:30pm. Informing of the change in price for products imported into the U.S. A higher reading for this data is counted as positive, and a lower reading negative.