The Bank of England decision to expand the quantitative bond buying at a time when the economy is showing signs of stabilisation will tend to be a negative factor for the UK currency. In the near term, Sterling trends will also be influenced strongly by degrees of risk appetite and the general tone of optimism will be supportive. Sterling will be much more vulnerable to selling pressure if there are renewed fears over the global economy. For now, a firmer tone is realistic with Sterling probing resistance levels, but there is little value in the currency at current levels.
The UK currency maintained a firm tone ahead of the Thursday Bank of England interest rate announcement with a peak towards 0.8750 against the Euro and near 1.52 against the US dollar.
As expected, the Bank of England left interest rates on hold at 0.50% following the latest monetary meeting. The bank also announced that it would expand the quantitative bond-buying programme with an additional GBP50bn of buying once the current GBP75bn buying programme has been completed by the end of May.
The move towards additional quantitative easing will represent an important medium-term risk for the currency. In response, the UK currency weakened back to near 1.50 against the dollar and also dipped sharply to beyond 0.89 against the Euro.