LONDON (Thomson Financial) - The pound fell against the euro and the pound as rumours circulated about possible trouble at a UK bank in an already very jittery market.
'Euro/sterling has ascended ... amid talk that a UK clearer might be having trouble raising funds -- and that this could even spur an emergency BoE base rate cut,' said Robert Howard at Thomson IFR Markets.
Many are sceptical, however, about how much truth there is in the rumour, especially given that a very jittery market is awash with rumours on a day when the euro has surged through the psychologically important 1.50 usd mark.
'There have been a bundle of rumours today and the market is just so reactive to everything at the moment,' said Mic Mills, a trader at TradIndex.com.
He added that there is also market talk of a possible liquidity injection by the Bank of England. The Bank of England was not immediately available for comment, however.
So far, BoE data shows that there was no demand for the central bank's standing facility, which attracts a punitive rate of interest, at 6.25 pct which is 100 basis points above the base rate of 5.25 pct.
'Given the highly nervous state of the markets this is however unlikely to be the end of the speculation where participants remain very much on the look out for any signs that a Northern Rock mark II is in the offing,' said David Corbell at Thomson IFR Markets.
The memory of the Northern Rock debacle last summer is still fresh in most minds. The bank had to go to the BoE for funding and a run on its deposits ensued. Northern Rock has since been nationalised.
At 10.09 am, the pound was trading at 1.9902 usd well below its earlier high of 1.9971 usd, while the euro was trading at 0.7570 stg, up from around 0.7540 at 8.30 am.
Rumours have also circulated, meanwhile, that the European Central Bank may be looking at intervening to curtail the euro's rise, though, again, this is seen as unlikely.
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