London: Another interest rate cut? Is it surprising that sterling have shrunk since the last interest rate cut? How can we attract foreign money through investment? Has previous cuts moved the current economic barometer favorably? These are questions Bank of England, BoE, have not answered.

As anticipated, the Bank of England cut further UK interest rate this morning which exerted further weight a heavily fragile pound sterling, GBP in early morning trades. When this interest rate cut goes through, it would become UK’s lowest interest rates in the BoE 300 years history. Since October 2008, we have seen interest rates plummet from 5% to January’s 1.5% and there is speculation that the MPC will cut the rate further to 1%. A view shared by many in the market place as ‘unwise’ especially when pension funds are being wiped out.

Rates Cut Weighs on Sterling

The day started with a slight dip from overnight trading of yesterday’s high of 1.4576. This soon fell to 1.4400. As  London and Frankfurt sessions opened, a further slide to 1.4365 was experienced with news of further interest rates cut. This rate cut accelerated already fragile intraday sentiment and thus causing sell-off.

From the above chart, we are looking to see range trading as many GBP players trade with caution. A re-test on the 1.4580 could see the market challenge the 1.4980 in the next few sessions of possibly week. While a breakdown below the 1.4320 could also see an avalanche of selling to a possible 1.4050.

However, while the Treasury and the BoE may want to do whatever they deemed necessary to relieve nation of recession pains, but there are concerns about the effect of any further cuts. At the moment, there are no reasons for savers to keep their money in the bank with the exchange rates at its lowest in years and traveling abroad has now become a luxury. According to the Federation of Small Businesses (FSB) survey, 63% its members wanted rates to remain at their current level, compared to 24% who wanted further cuts. “These figures suggest that the recent interest rate cuts are not having the desired effect and other means of economic stimulus are required… ” stressed FSB national chairman John Wright.

From forex trading perspective, any further interest rate cut would severely damage already depleted pound sterling, GBP. This will only create more challenges in the future. Keeping interest rates high has it’s benefits. It is s great draw for foreign investments which in turn provide jobs and services. It stems the frow of heavy borrowing. While it might be easier for the UK government to borrow from the market for now, will they consider the effect these interest rate cuts would have had on pensioners and savers?

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