Sterling slumped by 0.8% on Thursday as a rate cut by the
European Central Bank (ECB) caused investors to head back to the safe haven U.S
dollar. It was a busy day in terms of data releases as we also had the results
of the eagerly anticipated Bank of England (BoE) monthly meeting. Sterling fell back to $1.5502 over the course of the day, erasing
earlier gains following a surprise interest rate cut by China.
Over the last few days talk of the BoE meeting has dominated
the headlines as everyone braced themselves for another round of quantitative easing.
At midday Sir Mervyn King announced that policymakers had voted in favour of
further stimulus by adding another £50 billion to its asset purchasing programme
over the next four months.
The figure did not come as a surprise due to the UK being in a
double dip recession and the recent run of poor data, what was a surprise was
the impact it had on exchange rates. The pound started to increase against a
number of different currencies including the USD, however the gains were short
lived as news from the ECB broke of their decision to cut interest rates.
The ECB reduced its main interest rate from 1 percent down
to 0.75 percent and also cut its deposit rate to zero in an attempt to jump
start the euro-zone economy which has be hit by growing debt problems. This
weakened the Euro considerably and actually pushed the GBP/EUR rate up by a
cent to take it close the three and half year high witnessed earlier this year.
But the USD seems to still be the currency of choice and as investors headed
back across the pond cable suffered and rates fell over the duration of the
afternoon.
Over the next few days we could see rates move either way depending
on the results of the data releases coming from the U.S, UK and euro-zone, so
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