Bank of England, European Central Bank Hold Rates

Thursday, the Bank of England kept interest rates on hold at 0.5 percent and kept its asset purchase (QE) program at 375 billion pounds (about $600 billion) even as the U.K. economy continues to slip deeper into recession. Pressures from the European Union and fiscal contraction are weighing on the U.K. economy. Meanwhile, the European Central Bank kept rates on hold, leaving the repo rate at 0.75 percent and the deposit rate at 0 percent.

The lack of action from both banks follows a relatively active summer, where banks both launched new or increased bond buying programs and cut rates to stimulate economic growth. Also, the Bank of England has seen positive results from its FLS scheme, where it makes cheaper financing available to banks who lend more. Such a program has been hinted as another policy option for the Fed to spur lending in the U.S. and for the ECB to potentially replicate as well.

The EUR/USD climbed higher on the news to make a fresh session high of 1.2967 and the pound also gained against the dollar, as the GBP/USD moved higher to 1.6118. Also of note in currency markets is the EUR/CHF cross, which has once again climbed above 1.21, above the peg of 1.20 set by the Swiss National Bank.

Eyes will also be on European Central Bank President Mario Draghi at the press conference that follows the interest rate decision, set to begin at 8:30 am EST. Investors will be looking for clues from Draghi as to Spain's decision on a bailout, the implementation of the OMT, and the potential for further policy moves in the future. Also, recent fears that Greece will require a third bailout and a second debt restructuring, Cyprus is set to ask for a bailout, and Slovenia may also require a bailout for its failing banking sector.

The trouble with all of these new problems is that Germany's parliament needs to vote on every subsequent bailout request as they come. Reports from Japanese news agency Nikkei indicated that Draghi may urge the leaders of Spain, Greece, Cyprus, and Slovenia to all ask for bailouts at the same time, allowing the parliament to vote on one bailout package for all countries at once, rather than on a country-by-country basis. The reports hinted that German lawmakers may be more prone to allow more bailouts if multiple nations need them as it would show the dire state of European finances more profoundly.

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