The Great Britain pound dropped today after the Bank of England cut its interest rates, expanded its stimulus program, and lowered the growth forecast.
The BoE made a big announcement of additional stimulus package today:
At its meeting ending 3 August 2016, the MPC voted for a package of measures designed to provide additional support to growth and to achieve a sustainable return of inflation to the target. This package comprises: a 25 basis point cut in Bank Rate to 0.25%; a new Term Funding Scheme to reinforce the pass-through of the cut in Bank Rate; the purchase of up to £10 billion of UK corporate bonds; and an expansion of the asset purchase scheme for UK government bonds of £60 billion, taking the total stock of these asset purchases to £435 billion.
While the interest rate cut was widely expected by market participants, the increase of the asset purchase program was a surprise to a vast majority of traders and analysts. Some members of the Monetary Policy Committee voted against the increase while the vote for the rate cut was unanimous.
Furthermore, the central bank cut its projections for economic growth in 2017 and 2018 as well as for the Bank Rate. At the same time, the forecast for inflation was revised upwardly as the weak sterling should boost price growth.
Unsurprisingly, the pound sank after the news, falling more than 1% against its major peers.
GBP/USD 1.5% dropped from 1.3323 to 1.3121 as of 13:14 GMT today. EUR/GBP gained 1.4% from 0.8367 to 0.8487. GBP/JPY declined 1.6% from 134.87 to 132.66.
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