Sterling pares some losses after BoE decision


LONDON: Sterling briefly pared losses against the dollar and euro on Thursday but remained firmly in negative territory despite the Bank of England increasing its bond-buying by 100 billion pounds to bolster the coronavirus-hit economy. The central bank, which also kept its benchmark interest rate at 0.1%, said it expects a new total of 745 billion pounds in government bond purchaes to be hit by the end of the year.
Prior to the decision, sterling was trading as much as 0.5% lower against both the dollar and the euro. It jumped against both after the central bank’s decision but soon slid back towards the day’s lows.
By 1134 GMT the pound was 0.4% down against the dollar at $1.2508 and 0.4% down against the euro at 89.85 pence.
“It was on the hawkish end of the spectrum for what the BoE could have done today. The pace at which the BoE’s asset purchases will take place over the coming months will materially slow – meaning that there will be less marginal QE support,” said Viraj Patel, FX and global macro strategist at Arkera.
“That explains the headline-driven increase in the pound – although overall, given that the Bank can scale-up purchases as and when they like, it’s not something to get carried away with.”
While most economists polled by Reuters expected an expansion of 100 billion pounds, some analysts expected more. ING Bank and Nomura, for instance, expected an increase of 150 billion pounds.
“Uncertainty around a UK-EU trade deal should prevent markets from pricing out the possibility of negative rates in the UK,” ING strategists said in a daily note.
“We expect little progress in UK-EU trade negotiations in the weeks to come, suggesting further downside to the pound and the currency to be one of the underperformers in the G10 FX space.”