Central Bank decisions and effect on exchange rates

Thursday 7th March 2013 
Good afternoon. In today’s post I will take a look at the actions of the UK and EU central banks, and what effect today’s announcement had on exchange rates. So let’s first look at what the Bank of England did, following by a review of the European Central Banks actions. 
Bank of England decide no more QE, for now.
The Bank of England has kept interest rates at 0.5% and decided not to inject more stimulus into the economy. The decision means the Monetary Policy Committee (MPC) has now kept rates at historic lows for four years.

As you can see from the chart above, the Pound rose as a result of the news, and this is because there was the chance further Quantitative Easing (QE) would be announced to support the economy. This had been partially priced in to the rate, and so when no QE was announced, Sterling rose against the Euro and US Dollar. As we will see shortly though, rates quickly fell back again when the European Central bank announced their decision. 
BoE governor Sir Mervyn King voted to increase the QE programme at the MPC’s last meeting. He was among three MPC members who backed a £25bn increase in QE to £400bn, but was outvoted. The poor performance of the economy has prompted calls for the Bank of England to take a more proactive role in encouraging economic growth. 
So although no more QE was announced today, it is likely more stimulus will be announced in the coming months, so the downside pressure on the Pound remains. The gains were short lived today however, as the European Central Bank (ECB) comments strengthened the Euro and