Tag Archives: Quantitative Easing

GBPEUR 19 MONTH HIGH

The Pound has appreciated to a 19 month high against the Euro and towards recent highs against the US Dollar following the release of minutes from the Bank of England’s Monetary Policy Committee (MPC) April meeting. The minutes showed that the nine member MPC voted 8-1 in favour of keeping the Bank’s Quantitative Easing Asset Purchase Programme (QE) on hold at its current level of £325bn, with only David Miles voting for a £25bn expansion. At the previous meeting in March, two members David Miles and Adam Posen had voted for a £25bn expansion, the defection of Adam Posen to voting for no change to QE, coupled with yesterday’s higher than expected UK Consumer Price Index inflation data has reined in expectations of further QE from the Bank of England. As previously discussed, aggressive QE from the Bank of England has posed a significant threat to the value of the Pound. As this threat recedes, the Pound has appreciated.

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11:30 18/04/12

The Pound has fallen this morning …

The Pound has fallen this morning following the release of minutes from the Bank of England Monetary Policy Committee (MPC) meeting held on the 8th and 9th February. At that meeting the Bank decided to hold interest rates at the historic low of 0.50% and extend Quantitative Easing (QE) by an additional £50bn, taking the total Asset Purchase Programme to £325bn.

The minutes showed that the MPC was split over the size of the expansion of its Quantitative Easing Asset Purchase Programme. Of the nine member strong MPC, seven members voted to expand QE by an additional £50bn whilst two members voted for a larger expansion of £75bn.

As discussed in previous blogs, the threat of further QE continues to undermine the value of the Pound.

As I am writing this GBPEUR has slipped back below interbank 1.19, to a low of 1.1859 before recovering slightly towards 1.1870. Against the US Dollar the Pound has slipped back below 1.58 and currently trades at 1.5710.

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10:00 22/02/12

BoE

As expected the Bank of England has maintained interest rates at their record low of 0.50% and has voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves known as Quantitative Easing by £50billion to a total of £325 billion.

The Bank of England’s latest inflation and output projections will be published in the Inflation Report to be published at 10:30 on Wednesday 15th February and the minutes of today’s meeting will be published at 09:30am on Wednesday 22nd February.

The Pound currently trades at 1.19 against the Euro and at 1.58 against the US Dollar.

UK GDP & BoE

The Pound has recovered back above 1.20 against the Euro and continues to trade around 1.55 against the US Dollar on the interbank market.

Despite UK Gross Domestic Product (GDP) data showing that the UK economy contracted by 0.2% in the final quarter of 2011, the initial market reaction suggests that many expected the data could have been worse.

The recent UK economic data, coupled with the European debt crisis and anaemic global growth points to the UK struggling to avoid entering into another technical recession i.e. two consecutive quarters of negative GDP growth.

Whilst many analysts are hopeful of a mild or shallow recession in the UK, the fragile outlook increases the likelihood of a further expansion of the Bank of England’s Quantitative Easing Asset Purchase Programme (QE). Moreover, minutes released today from the Bank of England’s last Monetary Policy Committee (MPC) meeting held on January 12th indicated that a number of MPC members believed it was a likely a further expansion of asset purchases (QE) would be required, possibly as soon as the next MPC meeting due on the 9th February.

Aggressive QE from the Bank of England would pose a threat to the Pounds value and is one of the factors preventing the Pound forging higher against the troubled Euro. The Pound may be able to hold against a troubled Euro but could struggle against the US Dollar.

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Bank of England Quarterly Inflation Report & Eurozone Bond Yields

Today’s Bank of England Quarterly Inflation Report has suggested that UK inflation has peaked and is likely to fall sharply from its current rate of 5% (down from 5.25% in the previous month September) to 1.3% over two years. The Bank has also cut its UK economic growth forecasts to 1% for 2011 & 2012 but indicated growth should climb towards 3.1% in two years.

Both the outlook to economic growth and inflation are seen as unusually uncertain and much will depend on developments in the Eurozone, the Eurozone debt crisis posing the single biggest risk to the UK economy.

Current forecasts suggest that UK interest rates are likely to remain low for a prolonged period of time with the first interest rate hike from the Bank of England not expected until at least 2013 whilst the prospect of further Quantitative Easing remains a strong possibility.

The debt crisis continues in Europe with Italian 10 year debt trading back above the unsustainable level of 7% and the yield of Spanish government bonds back above 6%. Besides the usual suspects, debt market yields of France, Austria, Netherlands and Belgium have also risen sharply, hitting Euro era highs. Moreover, the spread between French and German 10 year debt has also hit a fresh high.

Clearly the debt crisis poses a significant threat to the value of the Euro, the Euro has been surprisingly resilient so far but over the medium term I would expect the Euro to fall against the US Dollar and Sterling.

On the interbank market the Pound is currently trading between 1.57-1.58 against the US Dollar and between 1.16-1.17 against the Euro.

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Bank of England Minutes

The Pound continues to trade either side of 1.14 against the Euro and around 1.57 against the US Dollar following the release of this morning’s Bank of England minutes.

The minutes showed that the Monetary Policy Committee (MPC) voted unanimously in favour of increasing its current Quantitative Easing Asset Purchase Programme by a further £75bn to £275bn.

The minutes revealed that the MPC considered extending Quantitative Easing between £50bn-£100bn.

The Bank of England’s next monetary policy decision is due on the 10th November. Despite the latest inflation data hitting 5.2%, 3.2% over the Bank’s 2% target. The Bank remains committed to its view that inflation should have peaked and will begin to fall back rapidly in 2012.

More QE

The Bank of England has extended its programme of Quantitative Easing by £75billion, more than most analysts were expecting.

As a result the Pound has slid from 1.1597 against the Euro to a low of 1.1450 before recovering to 1.15. Against the US Dollar the Pound slid from 1.55 to a low of 1.5273 before recovering to 1.53.

The European Central Bank will make their interest rate announcement at 12:45.

European Sovereign Debt Crisis

The European sovereign debt crisis continues to pose a significant threat to the recovery of the Euro-zone and to the wider global economy. The €109bn bail-out agreed in July for Greece may have averted an immediate significant Greek default and contagion spreading to Ireland, Italy, Portugal, and Spain but the Euro-zone continues to face significant challenges. In fact, despite Greece’s significant austerity measures, figures released by the Greek government over the weekend project that the 2011 deficit will be at 8.5% of GDP, well short of the 7.6% target agreed to secure the first bailout. Greece needs to secure the next tranche from the bailout fund of €8bn or it will run out of cash this month. Therefore for the time being Greece will remain firmly in the spotlight.

The ongoing uncertainty over the economic recovery in the UK and Euro-zone has caused some uncertainty in the outlook in the Pound -Euro (GBPEUR) exchange rate. So far the Euro has shown a surprising amount of resilience to the European sovereign debt crisis. Against the Pound the Euro appreciated to a EURGBP high of 0.9083 (GBPEUR 1.1010) at the start of July before falling back to 0.8705 (GBPEUR 1.1488) in the middle of July and settling around 0.8750 (GBPEUR 1.1429) in early August. Throughout September the EURGBP exchange rate traded between 0.8527 (GBPEUR 1.1727) and 0.8795 (GBPEUR 1.1370). The threat of further Quantitative Easing from the Bank of England temporarily weighing on Sterling before Greece once again took the spotlight. Today 3rd October the rate trades in the region of 0.8585 (GBPEUR 1.1645).

In Europe despite the debt crisis, the European Central Bank has increased interest rates to 1.50% compared to the Bank of England’s 0.50%. The full 1% interest rate differential advantage the Euro holds compared to Sterling, coupled with the threat of further Quantitative Easing from the Bank of England has so far prevented the Pound from appreciating significantly against the Euro. Currently we are hopeful that the Pound will eventually make some further progress against the Euro towards 1.18-1.20. However, the fragility of the UK economic recovery and the threat of further Quantitative Easing does pose a threat to this view. We expect to continue to see increased levels of volatility in the foreign exchange markets.

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Bank of England Minutes

The Pound has weakened this morning following the release of minutes from September’s Monetary Policy Committee (MPC) meeting.

All nine members of the MPC voted to keep interest rates on hold at 0.5% as widely expected. Adam Posen was the only member to continue to call for a further expansion of the Bank’s Quantitative Easing (QE) programme, voting for a further £50bn of stimulus.

Whilst only one member voted for further QE, the minutes indicated that for many of the MPC members the decision to hold QE at its current level of £200bn was finely balanced and that the case for further QE had strengthened.

As discussed in previous blogs the threat of further QE poses a significant threat to the Pounds value.

The Pound is down against the US Dollar trading at 1.56 and down against the Euro trading at 1.14.

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BoE and ECB

The Pound has appreciated against the Euro following today’s Bank of England and European Central Bank (ECB) interest rate announcements. Both Banks kept their interest rates on hold at 0.50% and 1.50% respectively.

However, in the following ECB press conference, ECB president Jean-Claude Trichet struck a more cautious tone, warning that the Euro-zone economy will grow more slowly than previously expected and that the risks to medium-term inflation had moderated.

Whilst stopping short of hinting at rate cuts in the short term, it is now more likely that we could see an interest rate cut from the ECB within the next 12 months. If the current interest rate differential narrows between the UK and the Euro-zone the Pound should gain against the Euro.

The Bank of England Monetary Policy Committee (MPC) does not hold a press conference following their announcement so the market will eagerly await the release of the MPC minutes on the 21st of September and the Bank of England Quarterly Inflation Report on the 16th November. The possible threat of further Quantitative Easing still poses a significant threat to the Pounds value.

The Euro has depreciated against both the US Dollar and Pound hitting a low earlier of 1.3945 and 0.8705 (1.1487) before recovering modestly.  Elsewhere, the Pound continues to trade either side of 1.60 against the US Dollar.