Will Bank of England Play Catch-Up?

In a Financial Times article on Saturday, it was reported that policy makers were discussing whether to buy mortgage-backed securities (MBS) as a way to restore confidence to the system and ensure funding for new loans. This article prompted the Bank of England to issue the following statement: “We have been examining a number of other options, but it is too early to go into any detail. The bank is not among those reported today to be proposing schemes that would require the taxpayer rather than banks to assume the credit risk.” Last Thursday, BOE Governor Mervyn King said the BOE would inject 5 billion pounds into short-term money markets every week until April 9. A series of stock-market rumours about funding problems at major British and US banking institutions has caused decreasing confidence in the interbank lending system, and the Libor, for three-month loans in pounds, climbed to 5.99% on March 20, the highest since December.

Although the BOE Monetary Policy Committee will next announce interest rates on April 10, some are speculating they would cut rates before then. Lehman Brothers and Barclays are bringing forward their forecasts for a UK rate cut as early as next month. This could put more downside pressure on the British pound.

Forex Trading

Last week, the US dollar had the first weekly gain against the Euro and the Japanese yen in a month. USD/CHF’s next bull targets are possibly around 1.0250, 1.0280-1.0300. Investor confidence and commodity prices will be the main focus. For now, if many people think that the current financial crisis in the US is bottoming and there should be more improvement from now on, then US dollar will rally further. But if there are some more bad news from the US, USD rally may be short-lived. This week, look out for US durable goods, housing, consumer confidence and GDP data.

Watch the video below:

Monday:

UK Rightmove house prices 0001 GMT

Fed plans TAF auction of $50 billion, US existing home sales 1400 GMT

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