Sterling falls on rumour of more QE

Thursday 8th September 2011
Good morning. Sterling has fallen to an 8 week low this morning against a basket of currencies, on speculation the Bank of England (BoE) may have to pursue more Quantitative Easing (QE) to try to stimulate growth in the economy. We have interest rate decision from the BoE today, and if they do indeed announce QE then Sterling could drop further. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1326
• GBP/USD 1.5934
• GBP/AUD 1.5040
• GBP/NZD 1.9138
• GBP/CHF 1.3727
• GBP/CAD 1.5705
• GBP/ZAR 11.372
• GBP/JPY 123.22
• GBP/DKK 8.4343
• GBP/NOK 8.5712
• EUR/USD 1.4063

Sterling falls on rumour of further Quantitative Easing

Due to continuing poor data showing growth is slow in the UK, many analysts think that the BoE will have no choice other than to pump more money into the economy through Quantitative Easing. A Reuters poll on their website today shows economists expect there is a 35% chance the BoE will resort to another bout of asset purchases to support the flagging economy.

However, London traders said some in the market were positioning for the possibility the BoE may announce more stimulus on Thursday, given persistent signs of a slowing economy in the past month. More quantitative easing would be negative for the pound as it would flood the market with the currency, reducing demand. If they do announce it today at 12:00pm then expect exchange rates to drop.

Interest Rate decisions today

Both the UK and EU announce interest rates decisions today at 12:00pm and 12:45pm respectively. We expect both zones to leave rates on hold at 0.5% (BoE) and 1.5% (ECB). As mentioned above however, we will watch for any mention of QE that could hurt the pound.

In the EU, while we expect no change in rates, they give a press conference at 13:30pm and often the comments made can significantly influence the value of the Euro.

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