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Bank of England & US Federal Reserve sit tight whist European Central Bank opt for a rate cut!

Two holds plays one cut: Monetary policy decisions were split in November as the Bank of England and US Federal Reserve chose to sit tight on further monetary policy easing while the new President of the European Central Bank (ECB) opted for a rate cut.

Decisions in London and Washington were expected, but there was some surprise that new ECB President Mario Draghi undertook a 25bps cut in his first outing. Nonetheless, with the likelihood of the Eurozone falling into recession, many have applauded the decision.

The Eurozone drama continues to dominate financial markets with events seemingly changing at an ever increasing pace. With the ink barely dry on a new deal to shore up Greece, a political crisis in Athens emerged, threatening to jeopardise the agreement. And with Italy in crisis, weakness in the euro is likely to continue.

The dollar is in pole position to gain from safe haven flows.

Download the November 2011 RBS Interest & Exchange Rate Forecast