ForexSpace.com - The People’s Bank of China beat the Bank of England to the punch today, surprising forex brokers and traders alike at the top of the morning in cutting both its lending & deposit rates by 25bps. China’s announcement of a raft of measures to boost lending ups the pressure on Ben Bernanke – up soon – to talk dovish when he addresses Congress about the economic outlook.

Right now, as FOREX.com’s Kathleen Brooks says, “the prospect of the two largest central banks potentially providing more liquidity is enough to placate the markets and extend this risk rally for another leg. But it doesn’t hide the fact that Spain’s banks still need recapitalising and there is no way to sever the link between the bank and the sovereign at this stage. Hence risk negative headline risk has not been eradicated.”

In the event, eurodollar edged to session highs after the Chinese move, seeing 1.2601 hit.

Back to the Bank of England, the MPC has held interest rates at historic lows of 0.5 percent, (where it has been since the beginning of 2009) and decided against pumping any more money into the economy, despite the escalating crisis in the euro zone. It also maintained its stimulus program of government-bond purchases at £325 billion, or around $500 billion.

A slump in manufacturing activity in May that was much bigger than expected had prompted many economists, including at Deutsche Bank and JPMorgan Chase, to bring forward their expectations for more stimulus by the central bank. BoE governor, Mervyn King (pictured), had hinted that the central bank’s rate-setting committee was open to further stimulus should the economy deteriorate.

Commenting of the BoE news, Anna Leach, Confederation of British Industry head of economic analysis, told us how both official and survey data continue to present a mixed picture of the economy, so this decision would have been a tricky one.

“It seems that a ‘wait and see’ position has been adopted for the moment,” said Leach. “The ongoing crisis in the Euro area will continue to put pressure on fragile business conditions for the foreseeable future. But we still expect the UK economy to improve modestly later in the year, with further falls in inflation providing some support to family incomes.”

However, there seems a very real danger that the decision to hold off on more QE will come to look like a missed opportunity. As Ranvir Singh, CEO of the market analysts RANsquawk, commented: "If there's one thing that the Eurozone crisis has taught us, it's that inaction now can store up big problems in the future.”

Drew Hillier. Editor