GBP/USD rises as BOE decides to leave rates unchanged

Analysts push back forecasts for increase in UK borrowing costs

GBP/USD rises as BOE decides to leave rates unchanged, Thursday, October 9: The GBP/USD has risen today, while the Bank of England (BOE) left its benchmark interest rate unchanged amid signs the global economy may be losing steam.

The central bank said in a statement, released at 12:00 BST, that officials on the Monetary Policy Committee decided to keep the benchmark rate at 0.5 percent and maintain the total size of the BOE's bond portfolio at £375 billion following their two-day meeting.

The decision which was forecast by all 60 economists who took part in a poll by Reuters had little impact on sterling and UK government bonds.

The pair was up 0.25 percent at $1.62 as of 13:11 BST and was trading three percent below its 100-day simple moving average of $1.67. Cable has climbed for a fourth straight day and has gained about 1.6 percent since touching $1.59 on Monday, the lowest level this year.

The BOE is expected to be the first of the world's major central banks to raise borrowing costs. The Wall Street Journal reported that investors thought the BOE would lift its benchmark rate from its 320-year low in Q1 next year, roughly three-to-six months before the Federal Reserve was expected to follow suit and raise US interest rates.

Bloomberg reports that banks including BNP Paribas SA have pushed back their forecasts over the past month, expecting that weak demand from Europe would keep UK interest rates on hold until 2015.

While the International Monetary Fund said on Tuesday that Britain’s economy would be the fastest-growing in the Group of Seven this year, it cut its prediction for the euro zone, the UK’s largest trading partner.

Market participants will be eyeing European Central Bank governor Mario Draghi’s statement from Washington at 16:00 BST today, as pressure on the ECB for the implementation of further monetary easing continues to rise.

Victoria Clarke, economist at Investec Securities in London, was quoted by Bloomberg saying that the deterioration in Europe would be closely followed by the BOE. “Any further softening in the data may be a final nail in the coffin for any speculation, including our own, of a November rate hike.”

Minutes of today’s policy meeting and a breakdown on how officials voted will be published on 22 October.

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