Bank of England cuts interest rates

Story link: Bank of England cuts interest rates

The euro and the pound both declined versus the US dollar on Thursday after the Bank of England’s Monetary Policy Committee cut the UK interest rate and the European Central Bank held Eurozone rates steady at 4 percent but issued a statement that seemed to leave the way open for a rate cut there as well.

The dollar traded at $1.9463 to the pound in mid-afternoon trade in London and had gained further, to $1.9404 to the pound by just after 1 p.m. in New York, while the greenback was at $1.4472 to the euro in early afternoon trade in New York.

Most analysts had expected the move by the Bank of England to cut the UK interest rate to 5.25 percent after London’s blue-chip FTSE 100 index dropped 9 percent in January, and some expect that the MPC will send rates down to 4.75 percent by the end of the year.

Besides the rate cut and prospect for more, the pound was also hurt by a new government report that showed UK factory output down 0.2 percent in December against an expected gain of 0.1 percent.

Elsewhere, the Canadian dollar reversed Wednesday’s gains to hit it’s lowest level versus the US dollar as it dropped against most major currencies on evidence that economic problems in the US are beginning to have an effect on other global economies.

The Canadian currency was hurt when traders sold currencies connected to commodities exporters as it looked as if demand for commodities would decline as economies slow.

The loonie was worth $1.0090 to the US dollar at early afternoon in New York.

The South African rand was also weaker as it dropped to a 16-month low versus the US dollar on fears that the ongoing power shortages and high interest rates will hurt economic growth in the African nation.

The rand dropped to as low as R7.8639 to the dollar during the Johannesburg session but had recovered to R7.6815 to the dollar by early afternoon New York trade.