Today we have had a speech by Sir Mervyn King, the Governor of the Bank of England. It was a bit of a none event and for the first time in a long while he did not talk the pound down which many experts have now come to expect.
Eyes are now all fixed on Interest Rate decisions tomorrow from both the UK and Europe. Both are expected to keep their respective rates steady however there is speculation building that there may be more QE announced by the Bank of England or a similar policy by the European Central Bank. Tomorrow is in my opinion the biggest day of the week and could potentially be the biggest driving force for the whole month of March. So what are the potential outcomes?
- Quantitative Easing announced for the UK of an additional £25 billion – Expect Sterling to weaken as a result of more pounds being created. This has the potential to lower sterling as much as 3/4 cent making a €200,000 purchase £1,000 more expensive.
- Quantitative Easing announced for the UK of an additional £50 billion – This is an unlikely outcome and is not expected by the market but it was to become a reality it could push rates by several cents adding maybe as much as £2,500 on a €200,000 purchase.
- No Quantitative Easing announced for the UK but an extension to the Bank Lending Scheme – This is probably the most probable outcome from tomorrow and would still result in a small drop, probably not a huge drop compared to before the release as it will be priced in. However compared to current levels today (Wednesday) maybe 1/2 cent drop, adding £650 to a €200,000 purchase
- European comments adding confidence to their Debt problems – This would be along the lines of Inflation to stay steady along with growth, plus their hope that things will improve and austerity plans across Europe to be kept. I expect GBPEUR rates to fall as the euro gets stronger in this event.
- Nothing significant or surprising – Rates will stay within this range of 1.1550-1.1620
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