Bank of England holds asset purchases

By Simon Eastman

Yesterday saw sterling continue to trade well against the euro following on form the gains made so far in the week. We also saw cable pushing the key interbank resistance level of 1.40 again, levels not seen in two weeks.

Unfortunately, the tide turned at midday on the release of the Bank of England’s dovish policy statement, which mentioned the “committee does not intend to tighten monetary policy” feeling longer is needed to watch inflationary pressures as we navigate out of the pandemic.

Despite inflation reaching above their 2 percent target this month, in a surprise gain, the feeling amongst the MPC is that tightening policy too soon, could have an  adverse downside effect. As such, interest rates were left at 0.1 percent and asset purchase at £895 billion, while markets were left with the knowledge we won’t see interest rates rising for some time.

Sterling’s losses seemed to be capped though, helped by a raft of lower than forecast key US data including the GDP reading, which came in unchanged at 6.4 percent. Durable goods orders dropped by 0.4 percent and capital goods orders went from 0.6 percent to negative 0.1 percent. Following these readings, GBP/EUR and GBP/USD traded in a tight 20 pip range.

As the week closes, we have an all day EU council meeting and the Bank of England’s quarterly bulletin. The key data releases come from across the pond again, in the shape of consumer sentiment surveys and consumer income and expenditure indices all released after lunch.

Given the movement yesterday, anyone with a currency transaction to make in the coming days or weeks, should give one of the team a call today to discuss your options.