On Monday, a very rare macroeconomic event occurred in Europe: the Bank of England decided to lower the benchmark interest rate by 25 basis points to about 3.75%, while the European Central Bank decided to keep the policy rate unchanged. The motivation for the Bank of England's rate cut was the deterioration of UK economic data and a significant decline in the inflation rate, but its tone was hawkish. Meanwhile, across the Channel, the European Central Bank decided to keep interest rates unchanged, citing "improved GDP prospects, low unemployment, and inflation basically in line with the 2% target."
For the market, this divergence clearly has winners and losers. The pound has risen because the market generally believes this rate cut is cautious rather than aggressive, while the euro has remained within a narrow range because the European Central Bank sees no reason to take any action. For the economy, this means that the UK's financial normalization process will be faster than that of the eurozone.
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