Bank Of England To Add A Further £100bn Of QE, But What Is The Impact?
Hantec Markets | Jun 18, 2020 13:08
The Bank of England has eased monetary policy pretty much as expected today. The Monetary Policy Committee has held interest rates steady at +0.1%, whilst also increasing its purchase of government bonds by an extra £100bn. However, sterling seems to like this seemingly dovish move (at least initially). All the talk in the run up has been how far the Bank of England is willing to go on loosening monetary policy. At least at this stage, it would appear, it is not willing to fire the final bullet.
MPC decisions
However, the expansion of the expectations show that perhaps it could have been more.
As can be seen in the graphic, whilst this increase in QE was arguably less dovish that it could have been. Whilst the consensus was appeased, QE could have gone way further and some in the market thought it could have been as large as another £200bn this time around. It will be interesting to see how sterling responds now, as the euro was boosted in the wake of the ECB’s larger than expected increase to its own emergency QE programme, the PEPP.
More Asset Purchases to come?
As at 17th June the BoE had purchased £617bn. The run rate of purchases is around £55bn per month and on that the extras £100bn will be done by the end of August. It does now mean that the Bank has a decision to make at the next meeting now in August as to increase for another £100bn or let the new purchases run dry.
Whilst the increase of £100bn was expected it is rather less of the big bazooka than employed by the ECB for example (the €600bn PEPP was more than the €500bn that had been expected and runs to the middle of 2020). Unless there is another announcement in August the Bank of England’s purchases will run dry about nine months prior to this. The Federal Reserve and Bank of Japan are running unlimited purchases which also look set to run deep into 2021.
Get The App
It is difficult to imagine the BoE will halt its asset purchases so soon. The UK is being hit hard by the COVID-19 pandemic and the economy will need to be supported for some time to come (and that is before we take into account Brexit trade deal scenarios with the EU).
The issue of negative interest rates
There was no mention of negative rates today. This is one of the key reasons why this should be sterling supportive as the dust settles on the decisions. Some MPC members have previously talked about negative rates, but it was kept off the agenda today.
The ECB and Bank of Japan have got negative interest rates and will do so for some time to come. The fact that the Bank of England does not appear willing to even formally discuss it at this stage should help to support sterling in the coming weeks.
Market Impact
Yields ticked higher and sterling has also been supported. The main factor seems to be the lack of negative rates (whilst perhaps the one dissenter on QE has played into this too).
UK 10 year Gilt yield – has jumped around 5 basis points. This has helped to steady a very subdued yield in recent days. If a floor of +0.13%/+0.16% can begin to develop then this would be positive for sterling.
GBP/USD – initially picked up on the announcement, however the gains have now all been given back. The key near term gauge will be the band of support between $1.2450/$1.2500 which has held throughout the past week. Is this decision enough to prevent a slide in Cable?
"""DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability. """
Original Post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.