GBP USD to Feel Pressure after Surprise Bank of England Decision

The British Pound is trading sharply lower following a surpriseannouncement by the Bank of England to boost asset purchases by 50billion pounds.

The British Pound is trading sharply lower following a surprise announcement by the Bank of England to boost asset purchases by 50 billion pounds.

This move was unexpected by both analysts and traders and it represented concerns that the current recessive economic conditions in the U.K. will continue.

Before today’s meeting, the GBP USD was in the midst of a strong uptrend, even posting a new high for the year yesterday. This rally was being driven by speculative traders who believed the BoE was going to announce a temporary end to its 5-month asset buyback program. Although analysts were split as to whether the BoE would continue to the program or halt it, most were surprised when the BoE voted to increase the amount of money available for the program to continue.

In its announcement just a short time ago, the Bank of England’s monetary policy committee announced that interest rates would remain at 50 basis points. In its statement it cited that this rate was appropriate in order to maintain its annual consumer price inflation target of 2%. The BoE also cited two major forces at work affecting the future of inflation: economic stimulus and the need for banks to repair their balance sheets.

The BoE predicts that the additional purchases will take about three months to deploy and will be centered on a wider range of maturities than previously announced.

The surprise announcement by the BoE is triggering a sell-off this morning which could trigger an all day break.

In other central bank news this morning, the European Central Bank voted to leave interest rates unchanged and to explore other avenues of economic stimulus. Some analysts had thought that the recent improvement in economic reports would have triggered a more hawkish comment by the ECB, but it looks as if economic concerns are still a factor. This news is expected to keep downside pressure on the EUR USD throughout the day.