Forex Blog: Currency Trading News & Analysis.

January 8th 2009

UK, EU Rates Headed Downwards

As investors gradually re-acquaint themselves with risk-taking, the interest rate story is once again dominating forex markets. For the last few weeks, this meant that investors were taking advantage of record-low US interest rates to fund carry trades in riskier currencies. Most recently, however, investors have begun to focus on the interest rate picture on the other side of the Atlantic. The Bank of UK just lowered rates to 1.5% and is "threatening" to match the Fed by dropping rates all the way to zero. The European Central Bank, meanwhile, is probably on the cusp of a similar interest rate cut. As commodity prices have relaxed and the credit crunch has slowed the expansion of the money  supply, the ECB is firmly justified in cutting rates, under the pretext of fulfilling its mandate, which is to guard against inflation. The upshot is that interest rate differentials, which have been fueling the Dollar's recent decline, may become less pronounced over the next year. Bloomberg News reports:

"There is increasingly more room for the ECB to be more aggressive on rate cuts. That will naturally put more pressure on the euro from an interest-rate differential perspective. We're seeing interest-rate differentials really come back into play in terms of a currency driver."

Read More: Euro Falls to Three-Week Low on Speculation ECB Will Cut Rates

SocialTwist Tell-a-Friend
Posted by Adam Kritzer | in British Pound, Central Banks, Euro | No Comments »

Sponsored Offers

FREE Daily Email Updates

Enter your email address:

Delivered by FeedBurner

Have Questions? Want to Share Your Review?

Be heard. Please share your reviews today!

Neighboring Posts

© 2004 - 2017 Forex Blog.org. Currency charts © their sources. While we aim to analyze and try to forceast the forex markets, none of what we publish should be taken as personalized investment advice. Forex exchange rates depend on many factors like monetary policy, currency inflation, and geo-political risks that may not be forseen. Forex trading & investing involves a significant risk of loss.