Will Yesterdays Quantitative Easing By the Bank Of England Affect Pound Exchange Rates?

Pound to Dollar Rate Shrugs Off UK’s Economic Woes

In a move widely anticipated by markets, we saw the Bank of England extend the Quantiative Easing program by another £50bn yesterday.  Initially the only reaction on the markets was actually a rebound in strength for the pound as an interest rate cut had been avoided.  However by late afternoon the pound had lost ground against most major currencies including the Aussie Dollar, USD, Kiwi Dollar, Rand, with the only notable exceptions being European currencies (more of which later).

Policy makers such as Mervyn King had been pretty transparent in recent public comments which allowed the markets to price in the QE which is why we haven’t seen much reaction so far but the sting could still be in the tale.  The move is another clear admission that the UK economy needs help (otherwise why the need for more QE).  Given comments last year that we would avoid a double dip recession and see better growth from everyone including Mervyn King, George Osborne, and many within the CBI, all of which proved to be wrong and subsequent growth forecasts have consistently been revised down.  In my view the UK economy is likely to continue to struggle, particularly with the problems in Europe still running and the banking sector (one of the UK’s biggest revenue generators) once again under attack.  On the whole if you are looking to move funds to any currency outside of Europe then I would not anticipate any huge long term gains.

US non farm jobs data this afternoon is likely to be an important in the short term for immediate global confidence, so if you need any imminent transactions feel free to get in touch for more info.  It will also have important long term consequences with jobs likely to be a key battle ground for Democrats and Republicans in an election year.  Should the jobs figures be poor then Republicans are likely to be abloe to use it to attack Obama’s economic policy as having failed but on the other hand strong data will give support to his campaign.  Either way I’m sure the US debt issue will come to the fore before long – last time the political brinkmanship between both sides of the US political divide nearly caused the US to default and drove the Dollar back through 1.60.  Weak jobs data could increase calls for more QE stateside, but also add fuel to the fire of how to tackle debt.  If you need to buy Dollars at a good rate before November then it may be worth opening an account by clicking here http://www.currencies.co.uk/ and letting one of the team monitor the markets for a spike up as overall I think this is one of the few ways GBP USD rates will ever breach 1.60.

The ECB rate cut yesterday was one of the few saving graces for the pound in that it weakened the Euro substantially pushing it back through the 1.25 barrier, and it took with it the Swiss Franc (due to the Swiss National Bank policy of fixing a base to the Euro of 1.20), and a number of other European currencies like the Polish Zloty, Hungarian Forint, Czech Koruna and Swedish Krone (not pegged but suffered due to lack of European confidence).  If sterling can hold above the 1.25 mark for a few more days then it could break through to higher levels but so far this year 1.25 has proved to be a bit of a ceiling.  I feel current levels for the pound against most European currencies represent a good time for limit orders as sterling test higher levels with ocassional spikes up.  If you want to know how to work these types of order in your favour then please feel free to e-mail me, Colm, at [email protected] as it has proved very succesful for clients who are looking to buy euros at 1.25