Sterling Libor eases after rate cuts

The Bank of England (BoE) announced a dramatic rate cut of 1.5 percentage points to 3% yesterday to address a “sharp downturn in the economy”. The European Central Bank (ECB) followed shortly afterwards, with a rate cut of half a percentage point to 3.25%, and refused to rule out further cuts in December.

Central banks in Denmark and Switzerland also cut interest rates by 50 basis points, while the Czech Republic announced a reduction of 75bp.

The impact was immediate in the UK, where overnight sterling Libor fell from 4% to 3.21%, and three-month sterling dropped over one percentage point, from 5.56% to 4.5%.

Reactions to the ECB’s actions have been more tempered. Overnight euro Libor decreased from 3.46% to 3.43% today, while three-month borrowing rates fell to 4.47% from 4.60% yesterday.

European equity markets saw slight increases this morning. As of 1255 GMT, London’s FTSE 100 index was up 1.22% to 4324.73, Paris’ Cac 40 index climbed 1.2% to 3391.42, and Frankfurt’s Dax index stood at 4816.95, a gain of 0.07%.

In the US, where the Federal Reserve cut its benchmark federal funds by 50bp last week, overnight dollar Libor remained stable at 0.33% and three month dollar Libor dropped to 2.29% from 2.39% yesterday.

As of 1230 GMT, the Ted spread, which tracks the difference between three-month Libor and treasury bills, stood at 1.99%, down from 2.08% at the close of trading yesterday.

The Chicago Board Options Exchange Volatility Index (Vix), which measures the implied volatility of S&P 500 index options, closed at 63.68 yesterday, up from a close of 54.56 on Wednesday.

The S&P 500 index dropped from 1005.75 at the close of trading on Tuesday to 904.88 last night, a fall of 10.03%.

In the Asian markets, the Hang Seng index increased by 3.29% from Thursday's close to reach 14243.43 at the end of Friday, while Japan’s Nikkei 225 fell 3.55% to 8583.

See also: BoE announces 1.5% rate cut

  • LinkedIn  
  • Save this article
  • Print this page  

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: