British pound sterling receives a boost vs EUR; currency markets awake from their slumber following central bank action

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Published on Thursday, 05 July 2012 13:49

Written by Rob Samson

International Money Transfers at our sister site

"The BoE decision was in line with our, and the markets expectations, although a disappointment to a small minority of forecasters calling for a larger extension" - Shaun Osborne at TD Securities.

The pound sterling (Currency:GBP) is on the move once more as investors take account of today's central bank action.

The pound euro exchange rate is a full 0.8 pct up on last night's close at 1.254. The euro has taken a beating courtesy of a 0.25 pct cut to the ECB refinancing rate and a gloomy economic assessment from ECB Preseident Draghi.

The pound Australian dollar exchange rate is 0.38 pct lower on the day at 1.5111. (Our IMT site continues to update with the latest investment bank FX forecasts, access is issued via this Facebook entrance path).


The Bank of England increased its asset purchase programme by 50bn GBP, in line with analyst expectations. The purchases will be spread over four months (as opposed to the more typical three) so this will take the MPC through to the November Inflation Report.

"There were no surprises in the accompanying statement. The risks emanating from the euro area were prominent and the general depiction of weakness in forward-looking survey indicators conveys the impression that the MPC has a clear dovish policy bias. This is significant as the MPC's 'hawkish' shift earlier in the year was predicated to a large extent on the firmer business surveys," says Ross Walker at RBS.

"The BoE decision was in line with our, and the markets expectations, although a disappointment to a small minority of forecasters calling for a larger extension of asset purchases helped boost the GBP on the announcement. The move has still been relatively tame though, leaving cable essentially flat on the day after earlier pressure. EUR/GBP however, has so far held gains, and could give up further ground if the ECB disappoints," says Shaun Osborne at TD Securities.

Simon Furlong at Spreadex notes that, "markets have displayed a mixed reaction as the Bank of England turned the Printing presses back on to pump a further £50bn into the UK’s struggling economy."

Interest rates will also be kept at a record low 0.5%. The decision was widely expected as the Eurozone debt crisis continues to take its toll on the British economy.

A good ADP Non-Farms figure in the states along with a better unemployment figure has also bolstered confidence in anticipation for Fridays Non-Farm report.