Markets and operations

Quarterly Bulletin 2001 Q1
Published on 01 March 2001

This article reviews developments in international and domestic financial markets, drawing on information from the Bank of England’s market contacts, and describes the Bank’s market operations in the period 1 October 2000 to 9 February 2001.

  • Short-term interest rate expectations fell sharply in all the major economies, posting the largest falls since the second half of 1998. Market participants now expect the next changes in US, UK and euro-area official interest rates to be reductions.

  • The European Central Bank raised its refinancing rate by 25 basis points at the beginning of October and then left it unchanged for the rest of the review period. By contrast, the Federal Open Market Committee reduced its target rate by 100 basis points in two steps during January. In February, the Bank of England cut its official rate by 25 basis points and the Bank of Japan reduced its discount rate by 15 basis points.

  • Uncertainty about the outlook for short-term interest rates increased significantly in the United States but remained relatively low in the United Kingdom and the euro area.

  • Government bond yield curves shifted down, with short-dated yields declining by more than long-dated yields.

  • Market sentiment towards the euro and the yen changed markedly during the period, with the former appreciating against the other major currencies and the latter depreciating strongly.

  • World equity markets weakened further during the period and the volatility of equity prices increased, particularly in the United States.


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