Sterling falls as £75bn Quantitative Easing announced

Friday 7th October 2011
Good morning. Sterling tumbled yesterday as the Bank of England embarked on another round of Quantitative Easing, as I said they may in yesterdays post. The scale of the stimulus (£75bn) surprised the markets, and the Pound fall sharply as a result. At 08:30am this morning rates are as follows:

GBP/EUR 1.1535
GBP/USD 1.5521
GBP/AUD 1.5822
GBP/NZD 2.0029
GBP/CHF 1.4252
GBP/CAD 1.6103
GBP/ZAR 12.298
GBP/JPY 118.87
GBP/DKK 8.5846
GBP/NOK 9.0136
• EUR/USD 1.3452

Bank of England in £75 billion Quantitative Easing

Yesterday the Bank of England announced £75 billion of QE. This has surprised the markets, as in the past they have done this in £25bn increments. The scale of the stimulus was not expected and as soon as it was announced, Sterling fell sharply by over 1% against other currencies.

Analysts said the BoE’s decision to buy 75 billion pounds in UK assets over four months was negative for sterling as the UK leads other developed countries in the latest round of flooding the market with currency while keeping rates historically low.

Sterling fell to a 14 month low against the US Dollar, and also fell against the Euro before recovering slightly after the European Central Bank meeting.

Find out more about Quantitative Easing here on the bbc site.

UK Banks Downgraded

Moody’s has downgraded the credit rating of 12 companies including Lloyds, RBS, Nationwide, and Santander. Moody’s said it now believed the UK government was less likely to support some firms if they got into trouble. This also weakened Sterling slightly.

ECB also in loans to banks

The European Central Bank is offering unlimited new 1 year emergency loans to banks to help steady the eurozone. The ECB said it would also help the banks by spending 40bn euros (£35bn) buying assets from them known as covered bonds. They left interest rates on hold, and the Euro strengthened by around 1% as some in the markets had expected a rate cut.

Today’s Data

Another round of inflation numbers for the UK today, this time the Producer Price Index. We will also see the latest non-farm payrolls data from the USA. These numbers are usually quite different than forecast and so can cause volatility for GBP/USD.

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