Interest rates: the impact on sterling

by Catherine Woods - Thursday, 6th November 2008 -

Sterling will hopefully strengthen in the weeks to come following the 1.5 per cent cut in interest rates, says FC Exchange managing director Nick Fullerton.

Fullerton, like nearly everyone else, expected the base rate of 4.5 per cent to be slashed by either 50 or 100 basis points. “I think they’ve gone for 150 basis points to get the banks to pass that cut on,” he says.

Fullerton expects sterling to weaken in the short-term, and then come back. “I think we’ll start to see, as the cut filters into bank lending and then into the economy, sterling strengthening,” he says.

“I think this interest rate cut of 150 basis points to three per cent might actually be the catalyst that’s needed to kick-start the economy.”

For those of you planning to indulge in a spot of currency trading, Fullerton has this advice: “If you’re thinking of selling, I’d probably hold on a bit, let the interest rate decision filter through to the market and take a view in the middle of next week.

“If you’re thinking of buying, get it done now before the market has a chance to digest the decision.”

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