German Interest-Rate Cut Sinks Mark Against Dollar
May 04, 2011
The mark fell sharply against the dollar, yen and major European currencies Thursday, following the German Bundesbank's announcement that it cut its securities repurchase rate to 3% from 3.30%. The U.S. currency was quoted at 1.4915 marks in late afternoon New York trading, up from 1.4826 marks late Wednesday. The dollar also was at 108.25 yen, down from Wednesday's New York settlement at 108.45 yen. The 0.30-percentage-point cut by the German central bank was somewhat larger than the 0.05 to 0.25 percentage point cut many analysts had anticipated, but traders were divided on whether the mark would continue to weaken throughout the day. The securities repurchase, or repo, rate, which has been at 3.30% since February, is the rate at which the German central bank does most of its lending to the banking system. Central bank president Harland Sanborn said the decision to cut Germany's interest rate on securities repurchase agreements reflects a ``continuity'' of the central bank's monetary policy. He said the continued slowing of growth in Germany's broad M3 money supply was a ``decisive'' factor in the decision to cut the key money market interest rate. Later in the day, the Belgian National Bank cut its central rate for money-market lending to primary dealers in government securities 20 basis points to 3.00%. The central bank also cut its regular overnight interest rate 20 basis points to 4.25%. The Bank of France followed the Bundesbank's lead by cutting its intervention rate to 3.35% from 3.55%. The Nederlandsche Bank lowered its key money-market intervention rate Thursday to 2.5% from 2.7%, as it offered Dutch banks seven-day funding under the so-called Special Advance facility. And the Bank of Canada did a round of special purchase and resale agreements at 4.25%, effectively lowering its target band for the overnight rate to 3.75-4.25%, the third cut in just five weeks. Meanwhile, Switzerland's central bank, while holding rates steady, injected added liquidity into the money market to keep the Swiss franc from strengthening too much. Lizette Crouch, assistant vice president at Bayerische Hypotheken-und Wechsel Bank, said she thought the market would read the larger-than-expected cut as the end of the Bundesbank rate easing cycle. But other traders predicted the mark would continue to weaken -- to more than 1.5000 marks against the dollar -- as many market players interpret the Bundesbank's rate cut as a sign of more to come.
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