In November, the UK central bank voted to leave its policy (bank) rate uncahged at a historic low of 0.1% which surprised investors who expceted an increase. The British Pound fell sharply against the US Dollar (more than 1%) and the Euro (more than 0.5%). The yield on 2 year gilts fell by 21 basis points. a) Why did the pound depreciate when the English Central Bank surprised the market by not hiking its policy rates as expected b) why did the yield cureve steppen after the Bank's decision not to raise rates? Are markets optimistic or pessimistic about the economy's future?
In November, the UK central bank voted to leave its policy (bank) rate uncahged at a historic low of 0.1% which surprised investors who expceted an increase. The British Pound fell sharply against the US Dollar (more than 1%) and the Euro (more than 0.5%). The yield on 2 year gilts fell by 21 basis points. a) Why did the pound depreciate when the English Central Bank surprised the market by not hiking its policy rates as expected b) why did the yield cureve steppen after the Bank's decision not to raise rates? Are markets optimistic or pessimistic about the economy's future?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In November, the UK central bank voted to leave its policy (bank) rate uncahged at a historic low of 0.1% which surprised investors who expceted an increase. The British Pound fell sharply against the US Dollar (more than 1%) and the Euro (more than 0.5%). The yield on 2 year gilts fell by 21 basis points.
a) Why did the pound
b) why did the yield cureve steppen after the Bank's decision not to raise rates? Are markets optimistic or pessimistic about the economy's future?
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