Bank of England cuts interest rates

Story link: Bank of England cuts interest rates

The Bank of England cut interest rates by a quarter of a percentage point to 5 percent on Thursday while the European Central Bank held interest rates at 4 percent for the time being, sending the euro higher versus the US dollar and the pound higher in relation to the euro.

The pound gained on the euro as the statement released with the announcement of the UK rate cut admitted that inflation will rise this year due to gains in food and energy prices.

The Bank took the decision to cut rates despite the threat of inflation because of the diminishing availability of credit.

In late morning trade in New York, the pound traded at 79.78 to the euro while the shared currency was at $1.5769 to the greenback after touching an all-time high to the dollar at $1.5912 before the ECB’s interest rate decision.

The euro’s gains on the dollar to the new record were cut after ECB president Jean-Claude Trichet said that problems in the financial markets could last longer than anticipated.

The yen, meanwhile, strengthened as investors continued to avoid risky carry trades, traditionally financed by low-yielding currencies such as the yen.

At late morning in New York the yen traded at ¥101.3650 to the US dollar, at ¥159.8474 to the euro, and at ¥200.3582 to the pound.

The Australian dollar strengthened in relation to the US dollar, trading at 93.30 cents US to the aussie near noon in New York, after a better-than-expected employment report in Australia.