Thursday, January 8, 2009

The Bank Of England Cuts Rates To Record Low

The Bank of England has been around for a long time and weathered many financial storms, but they feel the current storm is so bad that they have cut interest rates to the lowest amount on record. It doesn't appear that the rate cuts will stop there either, currency expert Kathy Lien predicts that more cuts are in the future given the Bank of England's pessimistic tone on the economy. So how will these rate cuts affect the British Pound? Kathy Lien discusses that as well in her blog post below.

As you may now, the Bank of England cut interest rates by 50bp to 1.50 percent, an all time record low for the 300 year old central bank

What I found most interesting about the BoE Monetary Policy Statement is the credit that they are giving to the weak sterling.

“But the substantial depreciation in sterling over recent months may help to moderate the impact on UK net exports of the slowdown in global growth.”

This is one of the arguments that I gave in my 2009 British Pound Outlook about why we expect the UK to be one of the first countries to recovery from the global economic downturn.

As for further rate cuts from the central bank, more is likely given the pessimistic tone of the BoE statement. Inflation is also expected to ease sharply.

However the GBP/USD has broken above the 50-day SMA and entered our buy zone as the rate cut confirms the aggressiveness of the central bank. As long as the currency pair remains above 1.4245 on a closing basis, we could see a move to 1.5585.

source: eSignal

source: eSignal

This post can also be viewed on kathylien.com.

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