The Bank of England announced the decision to cut its interest rate by 50 basis points today to bring the rate to its lowest standing in history. The rate reduction brings the interest rate to 0.50 percent from 1.00 percent as widely expected by market forecasts. The BOE 
had last reduced its interest rate by 50 basis points on February 5th and also cut its rate by the same amount in January.
The BOE statement on the rate cut commented on the current difficult economic environment, “World activity continued to weaken, reflecting both depressed confidence and the persistent problems in international credit markets. In the United Kingdom, output dropped sharply in the fourth quarter of 2008. That reflected lower consumer spending, a further fall in business investment and a rapid run-down in stocks, in part offset by stronger net exports as the past depreciation of sterling began to take effect.”
Meanwhile, the European Central Bank also cut its interest rate today to its lowest standing in the banks history. The ECB reduced its interest rate by 50 basis points from 2.00 percent to 1.50 percent as expected. The ECB had decided to keep its rate unchanged at its last meeting in February after reducing the rate by 50 basis points in January. The ECB now has slashed 275 basis points off the interest rate since October 2008.
Today’s rate decision followed the news release from earlier today that the Eurozone Gross Domestic Product declined by 1.5 percent in the fourth quarter of 2008. The Eurozone has been officially in recession since the third quarter GDP marked the second consecutive quarterly decline in GDP. The fourth quarter’s GDP decrease far surpassed the contractions in the second and third quarters which had declines of 0.3 percent and 0.2 percent, respectively.
Jean-Claude Trichet, the President of the ECB, commented in his press conference today that, “Reflecting the impact of the financial market turmoil, the world economy has weakened substantially in recent months, affecting increasingly also emerging market economies. In a climate of heightened uncertainty, a severe fall in world trade volumes has been accompanied by a pronounced decline in domestic demand in the euro area. As a consequence, euro area real GDP contracted markedly in the fourth quarter of 2008, by 1.5% on a quarterly basis, according to Eurostat’s first estimate.”
Trichet did not rule out any further rate reductions so we may look forward to more easing in the ECB rate.
Pound, Euro fall verses Dollar and Yen in Forex Trading.
The euro has fallen today in forex trading against currency rivals, the U.S. dollar and Japanese yen. The EUR/USD has fallen from its opening rate of 1.2616 as the pair trades under 1.2740 today at 3:06pm EST. The euro has declined today more than 150 pips versus the yen as the EUR/JPY trades at 123.29 after opening the day at 125.12. The euro has also seen declines today versus the Swiss franc while gaining against the Australian dollar and the New Zealand dollar.
The British pound has declined against the U.S. dollar as the GBP/USD has fallen to trading at 1.4119 after opening the day at 1.4156. Against the Japanese yen, the pound has fallen from its 140.40 opening rate today as the GBP/JPY trades around the 138.74 level. Against the euro, the pound has gained ground by approximately 20 pips today as the EUR/GBP pair trades at 0.8889.
Today’s Chart
EUR/GBP – The European Euro falls against the British Pound today in forex trading on a day that the European Central Bank and Bank of England both reduced their interest rates by 50 basis points. The euro has fallen steadily versus the pound since making a new all-time high at the end of December(Daily Chart).
