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BoE and ECB under pressure to cut rates

Surveys suggest economists expect cuts of at least half a point in the Bank of England rate to 4 percent and the ECB rate to 3.25 percent.

European regulators have approved two more national guarantee schemes, aimed at helping banks with financing problems resulting from the recent financial turmoil put forward by the French and Dutch governments. The European Commission said on Friday that both schemes were in line with EU state aid rules and the expanded guidelines which it recently set out for providing government assistance to financial institutions in the wake of the financial crisis. The latest decisions mean that eight national rescue aid packages for the banking sector have now been approved by Brussels.

On Saturday, the Reserve Bank of India took emergency action to pump liquidity into the country's banking system amid concerns that the global financial crisis would cut India's economic growth significantly. The RBI cut the repo rate by 50 basis points to 7.5 percent, lowering the main short-term interest rate for the second time in two weeks.

On Friday, the US September Consumer PCE index rose 0.2% vs. 0.1% expected. Chicago PMI further deteriorated in October to 37.8 vs. 48.5 forecasts looking ahead today, September Construction Spending forecast at -0.8% vs. 0.0% previously. October PMI Manufacturing 41.8 vs. 43.5.The Euro broke below 1.28 going into Europe on Friday although Support was found sub 1.27 and the pair traded in a tight range for the rest of the day. Also weighing on the pair was dismal German Retail sales (-2.3%). 

The Japanese Yen was one of the biggest movers initially hovering just below the 99.00 level; the market was surprised by the Bank of Japan cutting rates to 0.3% vs. 0.5% previously. The market was expecting a 0.25% cut and was rattled by the 4-4 split decision. Sterling gravitated towards the 1.600 level as risk aversion resurfaced but the level held and subsequent US stock rally led to a mild recovery going into the weekend. Overall the GDP/USD traded with a low of 1.6006 and a high of 1.6415 before closing the day at 1.6075 in the New York session.

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