It seems the U.S. isn’t the only one considering an interest rate reduction to help boost the economy and its exchange traded funds (ETFs). The U.K. has had banking and real estate problems that have pulled down its currency. Investors wonder if the Bank of England will cut interest rates to stimulate the economy, according to Carl Delfeld for ETF XRAY. The pound fell to a 14-month low against the euro and dropped below $2 against the dollar for the first time in a month.
The pound’s decline came in conjunction with the British government’s intervention to guarantee Northern Rock bank customers their savings, according to Peter Thal Larsen and Chris Giles for the Financial Times. The government’s move, which is unusual for the country, came because of signs that the lack of confidence in Northern Rock was spreading to other lenders. Overnight, the cost of borrowing funds surged to its highest level for six years.
The financial problems in the U.K. could affect the country-based ETF iShares MSCI United Kingdom Index (EWU) and its currency-based ETF CurrencyShares British Pound Sterling Trust (FXB). Year-to-date, EWU is up 3.0% and FXB is up 5.9%.
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