Weekly € rates and comments – week commencing 10th November 2008

The Bank of England's move to slash interest rates in the UK last week from 4.5% to 3% was surprisingly well received by the markets and it is hoped the decision will shock the flagging UK economy back into life. Despite rates being at their lowest for 53 years, there were suggestions following the announcement that further cuts may be on the cards in the early part of the new-year. Much of this speculation is owing to the fear of inflation coming in under the Bank of England's targeted 2% in the coming months. However despite the news of the aggressive cut in rates being seen as a positive move for the UK economy, sterling fell to new record lows against the euro on Friday morning and closed the week marginally lower against the US$.

 

The European Central Bank also cut their rates last week. A rather more conservative cut of half a percent to 3.25% that was largely expected did little in terms of market movement for the euro, which currently sits at 1.225/£1. Concerns parallel to those of the UK regarding the potential undershooting of inflation targets have left some to speculate that rates could well be reduced further in the next few months.