Key day for sterling as markets await possibility of BOE announcing further QE
09/Feb/2012 • Currency Updates•
GBP tumbles from its overnight peak ahead of a BoE meeting at which further QE will likely be announced. The issue over the Bank of England’s £50bn quantitive easing boost is brewing rows. The British Chambers of Commerce said yesterday that another £50bn of quantitive easing is necessary in supporting the ailing of UK economy. The financial markets are expecting the MPC to announce another £50bn to £75bn of asset purchases today on top of the £275bn is has already brought. BoE researchers estimate that the first round of QE, between March 2009 and January 2010 boosted the level of GDP by 2 percent. However, asset purchases by the central bank will reduce the yields of the long-term gilts favoured by pension funds.
The Euro rose toward a two-month high. European stocks rose as Greek leaders moved closer to winning a European Union-led bailout, agreeing on all but one condition of an austerity package.
However, unless Greece signs up to its second bailout in less than two years, it faces a catastrophic default next month when a E14.4billion bond issue falls due. Greece has agreed a deal with banks and hedge fund holders of its bonds to take voluntary losses.
Germany has suffered a major fall in exports as the global economic crisis hit demand for its goods. The country’s exports fell by 4.3% their fastest decline for nearly three years. That was four times worse than economists predicted. Imports also fell unexpectedly, suggesting the domestic economy was also beginning to feel the strain.
Spain’s recession deepened further with a 3.7% fall in factory output although the pace of decline was slower than November’s 7% drop. Also French services slowed to an index of 93- its 10th consecutive decline.
U.S index futures fell and Asian shares were little changed.The US dollar has been weak lately despite the strength of key American economic data, particularly last week’s December employment report and strong January ISM non-manufacturing survey -measuring the strength of the US services sector activity. The dollar started weakening when it was declared late January that the FED funds rate would be kept at essentially zero until at least late 2014. This caused the greenback weekend across the board. The market still prefers to invest elsewhere, thinking that other economies and their currencies still offer far superior growth rates, yields and returns.