The Great Britain pound erased its gains versus the Japanese yen and slumped against the US dollar and the euro today as the minutes of the Bank of England monetary policy meeting showed that some policy makers voted for a bigger increase of asset purchases.
The minutes showed that, while seven members of the Monetary Policy Committee voted for expanding the asset purchases program by £50 billion, “two members of the Committee (David Miles and Adam Posen) voted against, preferring to increase the size of the asset purchase programme by £75 billion to a total of £350 billion”. The reason for additional stimulus was explained by following considerations:
A case was also made for the larger amount of asset purchases, given the considerable margin of spare capacity remaining in the economy and the extent of deleveraging still likely to be required. There was a risk of a prolonged period of depressed demand causing inflation to fall materially below the target in the medium term. In addition, persistently weak growth might impair the future supply capacity of the economy through hysteretic effects: that risk could be attenuated by a more aggressive loosening of monetary policy in the near term.
Pound was hit by the statement as possibility of bigger quantitative easing wasn’t priced in. Economic data from the United Kingdom wasn’t particularly bad recently, making analysts believe that the central bank would slowly reduce stimulating measures. The dovish stance of some policy members was a real surprise to most economists.
GBP/USD slipped from 1.5780 to 1.5674 as of 18:17 GMT today. GBP/JPY traded at about 125.83 after climbing from 125.76 to 126.59. At the same time, EUR/GBP jumped from 0.8380 to 0.8453.
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