1st May 2008-Foreign Currency specialists Halo Financial report that US interest rates were cut, as expected, by 0.25 percent last night as the Federal Reserve moved to increase the availability of cheap money in order to offset the economic downturn. The detail is explored below but the effect has been to weaken the US Dollar against most currencies.
The Bank of England has also been in the news this morning after comments suggesting that the worst of the credit squeeze may already be over and that the amounts that banks have felt it necessary to write off their books in preparation for US sub-prime related losses may be comprehensively overstated. They appear to have a ‘glass half full’ view of things but there are many, including Monetary Policy Committee member , David Blanchflower, who feel the BoE will need to cut UK interest rates further and deeper before we see the other side of the slowdown. What’s more, the BoE itself has warned that the commercial property market may take a major hit in the year ahead costing banks up to £5 billion in defaults.
In spite of all this speculation, Sterling has remained relatively sanguine and actually gained strength this morning against the Euro and others. The Sterling – Euro Story is covered in more detail below but rest assured this is a great Euro buying level in the overall scheme of things.
The US economic growth data overshadowed the equivalent figure from Canada but the Canadian economy actually shrank by 0.2 percent in February; dragged down by the pedestrian pace of manufacturing growth. This contraction was well below market expectation and served to weaken the Canadian Dollar although it did make some gains against the beleaguered US Dollar.
The other Canadian news was a rise in the costs faced by manufacturers of 6.6 percent but this can be largely attributed to the rapid rise in energy costs.
Source: Halo Financial
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