Pound up after BoE, but GBPEUR rates unchanged

Good Morning. Sterling jumped to a 2 week high against the US Dollar on Thursday after the Bank of England expanded its quantitative easing programme by £25bn, confounding some analysts’ expectations of a bigger increase. The pound rose slightly agains the Euro, but then fell back on news the Eurozone economy is set to recover. Rates at 08:30am are as follows:

GBP/EUR 1.1164
GBP/USD 1.6619
GBP/CAD 1.7650
GBP/AUD 1.8128
GBP/NZD 2.2847
GBP/CHF 1.6876
GBP/ZAR 12.549
GBP/JPY 150.38
EUR/USD 1.4884

Bank of England Decision
The bank left rates on hold, but increased the QE programme by £25bn. A poll had shown that two thirds of analysts had predicted the BoE would expand its asset-buying scheme, with the consensus being an increase of 25 billion pounds. Some in the market had forecast a 50 billion pound increase.

Analysts said the pound rallied as market participants were relieved the BoE did not take more drastic action on quantitative easing, and on the view that it may hold off from implementing aggressive stimulus through the end of the year.

“Some in the market expected 50 billion pounds, and so 25 billion was seen as less aggressive,” said Chris Turner, currency strategist at ING in London.

So, as the move was widely predicted, and only £25bn was pumped in rather than £50b, this caused strength for the pound across the board. Some analysts said Thursday’s top-up may be the last.

With the BoE meeting over, analysts said the market’s next focus was on the bank’s quarterly inflation report next week, which they said would shed more light on the medium-term outlook for inflation, the key driver of the BoE’s monetary policy.

ECB Rate Decision
The European Central Bank (ECB) has kept interest rates on hold at a record low of 1% for the sixth month in a row.The ECB began cutting rates in October 2008, taking them from 4.25% to their current record low in May.

After the rates announcement was made the president of the European Central Bank, Jean-Claude Trichet, predicted the eurozone economy would recover gradually in 2010. Next week, the release of third quarter eurozone economic growth figures are expected to show the bloc exited recession, growing by around 0.5% from the second quarter.

This view that the EU will recover much faster than the UK economy helped trim any gains against the Euro. Rates initially climbed about half a point, but after the ECB decision, it fell back to roughly where we started the day, and indeed roughly where we are now at 1.1158.

Check back on Monday for a full breakdown of next weeks data, and the outlook on where exchange rates may go for the remainder of November.

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