Bank of England, European Central Bank Vote to Maintain Rate

ForexNewsNow | Published on November 4, 2010 at 10:28 am

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eur gbp european central bank bank of englandNEW YORK (Forex News Now) – In currency market trading news today, the Bank of England and European Central Bank both elected to maintain current interest rates and suspend asset-buying programs, contrasting with the Federal Reserve’s decision to engage in further monetary stimulus.

The Bank of England elected to keep interest rates at 0.5% and to also continue a freeze on buying more assets as a part of its ongoing stimulus program.  Neither decision was unexpected, and it is likely that GBP will not experience any major movements as a result of the announcement.

The likely reason behind the Bank of England’s decision comes from economic news suggesting that the UK economy is performing better than expected.  The economy grew at an unexpected rate for the third quarter, and surveys of the manufacturing and service sectors suggest that both are still growing.  Combined, this news more than likely convinced the BoE to hold off on further monetary stimulus for the time being.

It is possible, though, that further stimulus is enacted in response to extensive government spending cuts, and the consensus estimate is that such action will occur in February, 2011.

Those interested in currency market trading should pay attention to the minutes of the BoE meeting, to be released on the 17th.  Last month, one member of the Monetary Policy Committee – Adam Posen – voted to increase the asset purchase program by $81 billion. Another member, Andrew Sentance, called for higher interest rates.

The minutes could shed light on whether or not either of these ideas gained new supporters on the board.

Meanwhile, the European Central Bank elected to keep its interest rates steady at 1.00%, as well as maintain the current overnight deposit rate at 0.25% and its marginal lending rate at 1.75%.

This announcement was in line with analysts’ expectations and as such is not set to move the market in a major way. The major question left, though, is if the current market trading situation in the euro zone will forestall rate hikes, as doubts about periphery debt still linger.

This question and others could possibly be answered when European Central Bank president Jean-Claude Trichet delivers a news conference at 1330 GMT (9:30 EST).

So far in trading today, the euro is up 0.83% on the dollar, to 1.4255, while the pound is up 0.99% on the dollar, to 1.6265. The euro is down 0.16% against the pound, to 0.8762, after rising in expectation of both policy decisions today.

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