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Interest & Exchange Rates Fresh Expectations On Thursday

3/03/09-This Thursday sees the monthly interest rate decisions from the European Central Bank (ECB) and Bank of England’s Monetary Policy Committee (MPC).

Analysts are expecting the MPC to cut UK rates by 0.5%, to a new record low of 0.5%. Usually, a lower interest rate means a weaker currency – and therefore a worse exchange rate if you need to send money overseas.

However, the ECB are also expecting to cut rates by the same margin to 1.5% - so the effect on Euro exchange rates is hard to predict. However, anyone buying US Dollars or other currencies may want to take a cautious approach and secure a rate prior to Thursday’s announcements, both due at lunch time.

Much will also depend on the accompanying statements as to which way each currency moves. In Europe, ECB President Jean-Claude Trichet gives a detailed speech after the announcement – whereas in the UK we have to wait 2 weeks before the Bank of England publishes detailed minutes on the discussions around the interest rate decision.

Clearly interest rates in the UK will nearly be at 0% if the MPC cuts on Thursday, meaning the likelihood of “Quantitative Easing” (essentially printing more money) will be one of the only options left for the UK authorities to ease credit conditions and boost the economy. As an unprecedented move, it is unclear what effect this might have on the Pound

03/03/2009

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