U. S. Dollar gains against the Pound Sterling and the Euro
The Euro and the Pound Sterling fell against the U.S. Dollar today after aggressive interest rate cuts by the Bank of England and the European Central Bank. Investors still believe that there will be further interest rate cuts needed in order to stimulate the flagging economies.
The Bank of England reduced its interest rate by 100 bp to 2%, the lowest interest rate since 1951. According to analysts, further steps would be needed to prevent the current liquidity crisis from pushing the British economy into deep recession. .
The President of the European Central Bank, Jean-Claude Trichet announced a reduced economic growth in the Euro Zone for 2008 and 2009, which prompted immediate fluctuations in the Euro. His announcement was after the ECB cut its interest rate by 75 basis points, thus reducing the benchmark rate to 2.5%.
According to David Watt of RBS, ECB recognized that the information coming out would precipitate the need for an interest rate movement of at least 50 bp. He further believes that the ECB is aware that they may have to cut rates yet again.
On December 5, 2008 in early trading in New York, the Euro fell by 0.4% against the U.S. Dollar and traded at $1.2669, while the Pound Sterling fell by 0.9% to $1.4636. The Pound Sterling fell to a record low versus the Euro and traded at 86.95 Pence. The Japanese Yen gained against the U.S. Dollar by 0.8% and traded at 92.66 Yen; the Euro fell by 1.1% against the Japanese Yen and traded at 117.42 Yen.