* Pound jumps vs euro, steady vs dollar after BoE rate shock
LONDON, Nov 6 (Reuters) - Sterling rose against the euro and recovered losses against the dollar on Thursday as markets welcomed the Bank of England’s shock 150 basis point interest rate cut as a bold move to shore up the economy.
The BoE slashed its benchmark rate to 3.0 percent, its lowest in over half a century [nL6576008]. This ultimately triggered a sterling rally against the euro as the UK central bank’s move was more aggressive than a widely-expected half percentage-point rate cut by the European Central Bank.
Against the dollar, sterling trimmed initial losses following the BoE decision as investors rewarded the UK central bank for its decisive action to steer the economy clear of a deep and prolonged slowdown, rather than focusing on its diminishing yield advantage.
“The Monetary Policy Committee have got ahead of the curve with a pretty decisive move. Within today’s environment that’s viewed as positive: it’s good for the UK economy, good for confidence, and good for sterling,” Paul Robinson, chief sterling strategist at Barclays Capital said.
In contrast, he said the ECB’s 50 basis point cut to 3.25 percent -- which leaves euro zone rates higher than UK rates for the first time since the euro currency was launched in 1999 -- was “probably a disappointment”.
By 1515 GMT, the euro EURGBP= had fallen 0.8 percent to 80.55 pence. The UK currency recouped early losses suffered ahead of the BoE rate decision, when the single European currency threatened to take out last month's record high of 81.95 pence.
Sterling GBP= was essentially flat on the day against the dollar at $1.5920, recovering from a fall of well over a cent to a session low of $1.5722 immediately after the rate cut was announced.
In a statement accompanying the cut, the BoE said that the global banking system had experienced its most serious disruption for almost a century, and that there had been a very marked deterioration in the outlook for economic activity. On inflation, it said there was a substantial risk of undershooting the 2 percent target. [nBOETEXT].
The central bank faces a slumping housing market, steep declines in manufacturing and services sector activity and increased unemployment in an economy that contracted by 0.5 percent in the third quarter.
Economic weakness, highlighted by a record 14.9 percent year-on-year fall in the October UK Halifax House Price Index [nL6214102], has convinced investors that the BoE may follow up Thursday’s move with additional cuts through year-end.
Sonia interest rate futures have priced in an additional 25 basis point cut to 2.75 percent by December and many analysts believe rates will fall to 2 percent or lower early next year.
Market participants now await the release of next week’s quarterly inflation report for clues on how low interest rates will go.
“Clearly the scale of the cut announced by the Bank today was partly the result of their new forecasts for inflation and growth, due to be published in just under a week’s time,” Deutsche Bank economist George Buckley said. (Reporting by Naomi Tajitsu, Jessica Mortimer and Nicholas Vinocur, editing by Toby Chopra)
Our Standards: The Thomson Reuters Trust Principles.