Thursday, January 11, 2007

Bank of England Raises rates 25BP

In a surprise move the Bank of England raised rates 25bp this morning to 5.25 percent, parity to U.S. rates. The market was calling for no change and the move cause the pound to rally sharply from 1.9350 to a current level of 1.9520. The Euro rallied in sympathy but no change is expected from the ECB later this morning. Nervousness about inflation (CPI is currently 2.7% and moving up) and the high pace of money supply were the reasons cited. Since the majority of mortgages in the U.K. are floating rate's, any move in rates has a direct and immediate impact on the economy. This should place the CB on hold for now as they wait to see how this rate move effects the economy.

Good Luck and Happy Trading.



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