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Market Review - 06/11/2008 22:27 GMT
Cable tumbles on unexpected aggressive 150 basis point rate cut by the Bank of England
The British pound tumbled to 1.5570 on active cross selling in sterling as the Bank of England surprisingly made a 1.5% interest rate cut to 3% on Thursday, their lowest level in more than half a century (the biggest official interest rate cut since the 1981 slump). Euro rallied against the sterling from 0.7995 to close at 0.8142 while sterling fell sharply versus the Japanese yen from 157.59 to 152.21.
The Bank of England said the economic outlook had gotten a lot worse and drastic action was needed to prevent Britain from sliding into a deep recession. The British economy shrank for the first time in 16 years in the third quarter and most economists expected further contraction through to next year.
Interest-rate futures showed that the Bank of England will cut rates by another half a percentage point next month and again in the first three months of next year, taking rates to 2.0% percent by March. Two-year bond yields fell to a record low below 2.5%.
The European Central Bank and Swiss National Bank also cut interest rates by 50 basis points to 3.25% from 3.75% and to a 1.50-2.50% range from 2.0%-3.0% on Thursday. European Central Bank President Jean-Claude Trichet said the economy ‘weakened significantly’ and the International Monetary Fund cut growth forecasts for the region. Trichet said the ECB's rate-setting Governing Council discussed a 75 basis point reduction, adding to speculation that more reductions may follow. The single currency fell sharply from 1.2957 to 1.2679 while the greenback rose against Swiss franc from 1.1569 to 1.1796.
German manufacturing orders dropped by a record 8% in September. Inflation slowed to 3.2% in October after reaching a 16-year high of 4% in July. The European Commission said on November 3 that the region may be in a recession and the economy will stagnate next year.
The greenback traded inside a 97.49-98.69 range on Thursday due to active cross trading in jpy. Euro and aussie tumbled versus the Japanese yen from 127.05 to 123.90 and from 67.97 to 64.90 respectively. The commodity currencies also weakened in tandem vs the dollar, Australian dollar and New Zealand dollar also fell from 0.6903 to 0.6635 and from 0.6050 to 0.5858 respectively.
Friday will see the release of German trade balance, current account, industrial production, U.S. non-farm payrolls, unemployment rate, pending home sales and wholesale inventories. Economists and investors expect the most-widely watched U.S. payrolls to decrease by 200,000 in October and the unemployment rate to rise to a five-year high of 6.3%.
Cable tumbles on unexpected aggressive 150 basis point rate cut by the Bank of England
The British pound tumbled to 1.5570 on active cross selling in sterling as the Bank of England surprisingly made a 1.5% interest rate cut to 3% on Thursday, their lowest level in more than half a century (the biggest official interest rate cut since the 1981 slump). Euro rallied against the sterling from 0.7995 to close at 0.8142 while sterling fell sharply versus the Japanese yen from 157.59 to 152.21.
The Bank of England said the economic outlook had gotten a lot worse and drastic action was needed to prevent Britain from sliding into a deep recession. The British economy shrank for the first time in 16 years in the third quarter and most economists expected further contraction through to next year.
Interest-rate futures showed that the Bank of England will cut rates by another half a percentage point next month and again in the first three months of next year, taking rates to 2.0% percent by March. Two-year bond yields fell to a record low below 2.5%.
The European Central Bank and Swiss National Bank also cut interest rates by 50 basis points to 3.25% from 3.75% and to a 1.50-2.50% range from 2.0%-3.0% on Thursday. European Central Bank President Jean-Claude Trichet said the economy ‘weakened significantly’ and the International Monetary Fund cut growth forecasts for the region. Trichet said the ECB's rate-setting Governing Council discussed a 75 basis point reduction, adding to speculation that more reductions may follow. The single currency fell sharply from 1.2957 to 1.2679 while the greenback rose against Swiss franc from 1.1569 to 1.1796.
German manufacturing orders dropped by a record 8% in September. Inflation slowed to 3.2% in October after reaching a 16-year high of 4% in July. The European Commission said on November 3 that the region may be in a recession and the economy will stagnate next year.
The greenback traded inside a 97.49-98.69 range on Thursday due to active cross trading in jpy. Euro and aussie tumbled versus the Japanese yen from 127.05 to 123.90 and from 67.97 to 64.90 respectively. The commodity currencies also weakened in tandem vs the dollar, Australian dollar and New Zealand dollar also fell from 0.6903 to 0.6635 and from 0.6050 to 0.5858 respectively.
Friday will see the release of German trade balance, current account, industrial production, U.S. non-farm payrolls, unemployment rate, pending home sales and wholesale inventories. Economists and investors expect the most-widely watched U.S. payrolls to decrease by 200,000 in October and the unemployment rate to rise to a five-year high of 6.3%.
