Forex: GBP/USD – Sterling declines almost 170 pips

on Jul 4, 2013
Listen Thursday July 4th: The pound surprisingly shed almost 200 pips against the USD following release of the Bank of England’s monetary statement at 12.00 BST today.

The pair sank from 1.5265 to 1.5074 on news of the BoE’s decision to keep fiscal asset purchases at £375 billion per month and the benchmark interest rate at 0.5 percent.
Some observers have expressed the view that more QE is a possibility at the August policy meeting, by which point the Monetary Policy Committee will have seen the Bank’s latest forecasts for growth and inflation in preparation for its next quarterly Inflation report.

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At the previous meeting, only three MPC members, including outgoing BoE chairman Mervyn King, voted for an additional £25 billion of QE.

Today’s meeting was the first to be presided over by the new governor Mark Carney, poached from the Bank of Canada. The minutes of today’s meeting will be published on 17 July, revealing whether or not Carney voted for or against more stimulus.

In recent times, the pound has been getting support from mainly positive UK economic data, which is also dampening expectations for additional easing. The UK’s economic growth intensified in the second quarter of 2013, with GDP expansion of 0.3 percent.
Earlier this week service sector activity in June was reported to have been at its fastest rate of growth since March 2011 and manufacturing activity showed the best progress in more than two years.

Earlier today, Paul Robson, a senior currency strategist at Royal Bank of Scotland in London, observed: “We think we will get a statement, which breaks with tradition. We’re not expecting sterling to react poorly to the fact that we get a statement. The data point to the economy growing, so it’s quite hard for them to justify anything too dovish at this point”.
Statement or not, the market is clearly not yet ready to bail out of the USD in favour of the greenback.
Currently the pair is at 1.5105, marginally back up on the post-release low.


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