UK, EU Rates Headed Downwards
As investorz 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.
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Posted on January 8, 2009
at 9:17 pm
Written / posted by: Simon
Filed under: Credit Crisis, News