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Pound falls after big BoE rate cut, then recovers
23:19, Thursday, 6 November 2008
LONDON, Nov 6 (Reuters) - Sterling initially fell and UK
interest rate futures soared on Thursday after the Bank of
England surprised markets by delivering a much
bigger-than-expected cut in interest rates to boost the ailing
economy.
The UK central bank slashed rates by 1.5 percentage points
to 3.0 percent, wrongfooting market expectations for a cut of up
to 1 percentage point [nTAR005422], due to tighter credit
conditions as the global banking system was experiencing its
most serious disruption in almost a century.
Sterlingfell as low as $1.5722 from around $1.5860
shortly before the announcement. By 1214 GMT, it had recovered
those losses.
Britain's FTSE 100 <.FTSE> briefly pared losses after the
announcement, but resumed its fall to be down 3.1 percent at
1214 GMT.
December Gilt futuressoared after the announcement,
climbing 78 ticks on the day.
"The size of the rate cut is a surprise, and the initial
reaction will be sterling to weaken." said Audrey
Childe-Freeman, currency strategist at Brown Brothers Harriman
in London.
"But the mood of the market is to reward proactive central
bank action, so the negative impact on sterling may prove to be
short-lived and not as large as it would be under normal
circumstances."
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