Over the past 6 months the developed countries, from the West to the Far East, have substantially cut short-term interest rates in order to stimulate their economies. Since October, the British Official Bank Rate has been cut from a high of 4.50% back in October, to 1.5% in January, making this the lowest rate in the Bank of England's (BoE) history.
The most significant economic news releases that analysts are focusing their attention on this week are the scheduled decisions by the BoE and ECB on Thursday at around 12:00 GMT on whether or not to cut these rates even further. Here is ForexYard's analysis as to the impact these decisions will carry on the GBP and how forex traders can benefit from the impending price movements. Read the previous article to see the impact which the ECB rate cut will have on the EUR.
GBP - BoE Official Bank Rate Decision and its Impact
Prior to the commencement of 2009, it seemed that Britain's economy was in much worse condition than that of the Euro-Zone. However, recent developments have revealed this not to be the case. The dire situation in Britain is also matched by that in places such as the Euro-Zone, China, Japan, and the United States.
Most analysts predict that Britain will cut her Interest Rates by an additional 50 basis points to 1% this Thursday. Such a move would not be taken by the BoE unless it was pre-determined that it would instill strength back into the British economy. Typically a rate reduction weakens the national currency; however, lately these reductions have performed the necessary function of putting some confidence back into the market.
As we have seen with the U.S., Canadian, and Japanese economies, rate cuts these days have produced a rally to the currency directly affected, contrary to the usual effect. Many experts agree that this may in fact be the case with the GBP. We could see a strong appreciation of the Cable up towards levels of 1.4550 if the BoE does indeed cut its rate.
Forex traders should take advantage of this information by entering their long positions before the rate cut is announced and capturing profits from the price swing which may result.