Sterling Rises After the BoE, Holding On to Its Intraday Gains
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Sterling Rises After the BoE, Holding On to Its Intraday Gains

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Azeez Mustapha

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After the BoE’s policy decision, sterling was briefly raised, but there was no follow-through buying. The dollar is also unconcerned about unemployment claims. Overall, the markets are consolidating and will most likely remain so until tomorrow’s non-farm payrolls report.

The Bank of England unanimously left the Bank’s rate unchanged at 0.10%. The asset purchase target was supported by 701 votes at £895bn. Michael Saunders was the only MPC member to vote to cut to £850bn. The Bank of England noted that the committee will focus on “the medium-term inflation outlook,” but “will not overemphasize the pressure on production capacity, which is frictional and may be temporary.”

Although there is “bilateral risk” around the central trajectory of medium-term inflation, risk management considerations “still have some strength”.

The Bank of England also said that GDP is expected to grow by about 3% in the third quarter, with “a slight negative impact from recent events related to the pandemic.” According to forecasts, GDP will “recover by the end of the year” and will reach its pre-pandemic level in the 4th quarter of 2021. CPI inflation is forecast to “temporarily” rise to 4% in the fourth quarter, but will again approach the 2% target.

Sterling Held On to Intraday Gains

Sterling jumped to new session highs around 1.3948 after the Bank of England announced its policy decision, although it quickly retreated a few points after that. The GBP/USD pair has managed to stay above the 1.3900 barriers so far.

As expected, the Bank of England left its monetary policy parameters unchanged, leaving interest rates and Asset Purchase Facility unchanged at 0.1% and £ 895 billion, respectively. However, the fact that only one MPC member, Michael Sanders, disagreed with the quantitative easing vote was seen as a key factor behind the moderate gain in the British pound.

In an accompanying statement on monetary policy, the UK central bank has shown its willingness to introduce negative interest rates if necessary. The Bank of England also added that this does not mean that a negative rate is the preferred policy. However, talk of negative rates proved to be a key factor keeping bulls from aggressive rates and limited the GBP/USD pair’s gains.

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