BOE Doesn't Surprise, China Does

The BOE lefts rates unchanged and chose not to increase its gilt holdings.  The UK did report a better than expected service PMI today, but there was some thought it would respond to a series of other data that warns that stagnation was morphing into outright contraction.  

Yet China stole some of the thunder.  Just before the BOE announcement, China announced its first interest rate cute since 2008.  Both deposit and lending rates will be cut by 25 bp.  The 1-year lending rate will also be cut by 25 bp.   

Once again China moves ahead of the G20 meeting.  This is its modus operandi.  Take action or make some announcement prior to international gatherings such as IMF meetings or G20 meetings.   Some might link the rate cut to pre-knowledge of the upcoming data stream.  While many expected China to ease policy, most had focused on required reserves ratios.  The timing too would catch players by surprise.  

The China move sparked a quick risk-on trade that seemed to fade, though the Aussie and Kiwi remain firm.  Large liquid resource EM currencies, like the South African rand is also doing well.  Sterling quickly spiked up, but like the euro it appears to be struggling to hold on to the China-inspired gains. 
BOE Doesn't Surprise, China Does BOE Doesn't Surprise, China Does Reviewed by Marc Chandler on June 07, 2012 Rating: 5
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