BoE keeps rates & bonds buying unchanged, pound climbs

Tom Tong05/Nov/2010Currency Updates

GBP

Sterling strengthened yesterday to nine-month highs vs the dollar as the Bank of England refused to follow the Federal Reserve in the quantitative easing and kept its bonds-purchase program unchanged.

The Bank of England stuck to its plan to spend £200 ($324 billion) on buying the government bonds. The bank also left the interest rates at 0.5 percent. The minutes of the Bank’s policy makers meeting will be published on November 17th.

Further gains were bolstered with news from the US of the Fed’s plan to buy $600 billion Treasury bonds emerged (see USD news). Despite slipping a cent versus USD overnight, GBP managed to retain its strong position following yesterday’s news.

EUR

The eurdollar traded above $1.4200b on Thursday, testing its highest level since January over concerns about the future of the greenback after the Federal Reserve announced a $600 billion bond buying program in order to stimulate the lacklustre US economy. The EUR received a further boost versus the USD when the European Central Bank kept rates steady, adding momentum to the euro’s rally.

In other EUR news Ireland announced yesterday its plans to make €6 billion in spending cuts to state-run services and benefits.

USD

The dollar dropped versus riskier currencies such as the euro and British pound and reached record lows versus the Australian and New Zealand dollar amid fears that the Fed’s $600 billion bond buying plan will prove detrimental to the USD. The Fed’s plan to buy $600 billion of US Treasuries over the next eight months, unveiled Wednesday, was slightly higher than market expectations. The possibility of further quantitative easing in the future put further pressure on the greenback.

The concern is that the program will prove ineffective in boosting the US economy while flooding the markets with cheap dollars. Investors turned to riskier currencies and commodities as an alternative investment.

Today the USD may see further pressure with the release of the Non-Farm Employment Change and Unemployment Rate at 12:30 GMT and the Pending Home Sales at 14:00 GMT. Investors are also advised to follow Ben Bernanke’s speech at 18:00 GMT for any clues regarding the future of monetary policy.

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Written by Tom Tong

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