BoE and ECB Interest Rates & Quantitative Easing

The pound was mixed yesterday, falling against the US Dollar but gaining slightly against the broadly soft euro, a recovery which helped lift sterling up from 5 month lows hit earlier in the day.

There were no major UK economic data releases yesterday with markets waiting for todays announcement from the Bank of England. Rates @ 08:30am are as follows:

  • GBP/EUR 1.0868
  • GBP/USD 1.6061
  • GBP/AUD 1.7771
  • GBP/NZD 2.1682
  • GBP/CAD 1.6939
  • GBP/DKK 8.0883
  • GBP/JPY 141.68
  • GBP/ZAR 11.771

Bank of England & ECB Interest Rate decisions.
The Bank of England and European Central bank will announce their decision on interest rates today. The BoE may also expand its Quantitative Easing programme. We expect the BoE to hold interest rates at 0.5% for the 7th month in a row, and the ECB will also likely leave rates unchanged at 1%.

The key to what will happen with exchange rates today is whether the BoE will maintain its programme of pumping money into the economy – called quantitative easing – but is not tipped to extend it. However, there is an outside chance that the amount of money being created and pumped into the economy will be raised.

The BoE have already said that the programme will remain in place, but analysts expect the bank to wait until more economic figures are released, and then expand the programme in Novemeber. We have been surprised before though, so dont’ discount a chance that more money may be created today. Because of the poor manufacturing data this week, there’s a chance this means the BoE will expand the programme today.

The dramatic 1.9 percent fall in UK industrial production followed a mixed bag of economic data in the past week and raised the prospect that the economy may not return even to slight growth later in the year, as the UK government expects.

“A clear exception to the global recovery story is sterling, which remains vulnerable after yesterday’s much weaker than expected August industrial production figure,” Calyon strategists wrote in a note on Wednesday. “The market remains down on sterling,” they said.

UK Economy not growing
Contrary to expectations, the UK economy did not grow in the third quarter of the year, an influential economic group has predicted. Gross domestic product (GDP) was unchanged from July to September, the National Institute of Economic and Social Research (NIESR) calculated.
Official GDP figures for the third quarter will be released on 23 October.

Many economists predicted there would be growth in the three-month period, which would end the UK recession. The NIESR blamed the economy’s failure to register any growth on weak industrial production in August, especially reduced activity in the oil industry.

Summary
The pound is weak due to poor economic data, while most other economies are recovering. Why? We’re one of the only economies trying to spend their way out of the problem, and the levels of government debt are huge, with no plan at all on how to repay it. EU economies are recovering much faster than ours, and the QE programme is keeping the pound weak.

Markets have priced in much of this weak data already, which is why the pound is so weak. Today will be key. Depending on what the BoE do at lunchtime, then rates will swing either way.

If you have a requirement, you can fix rates in advance of this decision to protect against any adverse movement. Doing nothing means you may gain, or equally you may lose. If you do wish to wait to see what the BoE do, then consider placing Stop and Limit orders to make sure you can control any loss should markets not go your way.

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