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Sterling Stumbles on BoE News

Sterling Stumbles on BoE News

The Bank of England’s surprise decision to extend its quantitative easing (QE) programme has left the sterling floundering.  On Monday, it was at a low of $1.6610 and remains under pressure.

The Bank decided at its last meeting last week to extend QE to £175 billion – a figure much higher than had been expected.  Indeed, many economists had expected there to be no extension at all.

Furthermore, the Bank releases its latest Inflation Report on Wednesday and it is expected that the growth forecast for the UK will be downgraded.

Over in the USA, job data was better than expected in figures released on Friday.  It is even expected that interest rates there might rise again by the end of the year.

While the US enjoys this boost to confidence, the UK is back to a gloomier outlook.  Up until the BoE’s announcement, the country had been showing signs of improvement and markets had picked up. 

A surprise announcement is usually causes sharp ricochet’s to the financial market.  The Bank’s decision to extend the programme came amid the Bank’s indication that inflation will remain ‘subdued’ over the medium term.  Jobless numbers are not expected to slow in the near future.

Trade was already volatile last week but this latest dip in sentiment, coupled with the improved data in the US means that the sterling struggled while the US dollar made gains.  Overall, QE is expected to aid currency health for the sterling – in the long term.