The sterling pound dropped today after the Bank of England's Monetary Policy Committee voted to leave the official Bank Rate paid on commercial bank reserves unchanged at 0.5%, however, the Committee surprised investors with an unexpected move, where the majority of the Committee members voted to expand the quantity of asset purchase program, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion.
This unexpected movement from the Bank of England's MPC that had a bearish effect on the sterling pound came as the Committee judged that it was necessary to inject further stimulus to support the sluggish pace of growth and to revive recovery, especially when the Bank expects inflation to undershoot the 2.0% target over the medium term, and after the gross domestic product figures released yesterday showed that growth is faltering.
Recently, George Osborne said he is ready to approve any request from the bank to add to the non-standard measures.
U.K. GDP for the second quarter was downwardly revised to 0.1% from the preliminary of 0.2% while the annual reading was also revised down to 0.6% from 0.7%, mainly supported by exports which were affected by the escalating European debt woes since the euro area is the largest trading partner to the Kingdom in addition to the sluggish global growth trajectory seen in the second quarter.
The pound slipped against the U.S. dollar after the news from areas around 1.5480 to a low of 1.5271, noting that the pair opened the session at 1.5458 and reached a high of 1.5501, and is current hovering around 1.5317.
Concerning the EUR/GBP, the pair opened the session today at 0.8630, recording a high of 0.8728 and a low of 0.8620 and is currently hovering around 0.8677.
Moreover, the European Central Bank Governing Council voted to keep the benchmark interest rate unchanged at 1.5% as the bank's aim remains to ensure price stability especially after infaltion surged to 3.0% in September and the bank did not respond to rising pressure to stimulate the faltering recovery amid deepening debt woes.
The U.S. dollar index (USDIX) advanced after opening the session at 78.92, and recorded a high of 79.35 and a low of 78.69 and is currently trading around 79.29.
Concerning the EUR/USD, the pair retreated after the news to a low of 1.3265, after opening the session at 1.3347 and recording the highest at 1.3398. The pair is trading now around 1.3282 ahead of Trichet press conference.