This article reviews developments in international and domestic financial markets, drawing on discussions with the Bank of England’s market contacts, and describes the Bank’s market operations in the period 31 March to 7 July 2000.
- Official interest rates were raised in the euro area and the United States by 75 and 50 basis points respectively during the review period, and were left unchanged in the United Kingdom. At the same time, short-term interest rate expectations for 2000 and 2001 were revised up by almost 50 basis points in the euro area, but were lowered by around 20 and 50 basis points in the United States and United Kingdom respectively.
- Uncertainty about the outlook for short-term interest rates appears to have lessened; an increasing number of market participants believe that the peak in the US and UK interest rate cycles is fairly close at hand.
- The US and UK government bond yield curves became less inverted and euro-area yield curves became flatter during the review period; long bond yields were little changed.
- World equity markets remained volatile, largely as a result of further significant changes in IT-related share prices in April and May.
- Tentative signs of a change in sentiment towards both sterling and the euro emerged, with the former depreciating and the latter appreciating over the period.