Sterling weakens after no change made to quantitative easing

Published: 21 June, 2012

Sterling weakened off sharply in the morning as the Bank of England's policy meeting minutes revealed that the MPC members voted 5-4 to keep quantitative easing unchanged.

Currency Rates
EURO/GBP - 1.2364
US$/GBP - 1.5678
CHF/GBP - 1.4863
CAN$/GBP - 1.6026
AUS$/GBP - 1.5446
ZAR/GBP - 12.9247
JPY/GBP - 124.85
HKD/GBP - 12.1641
NZD/GBP - 1.9668
SEK/GBP - 10.9310
AED/GBP - 5.7554
US$/EURO - 1.2668
INR/GBP - 88.42

This a big shift from last month's 8-1 vote suggesting that we will see more quantitative easing announced in July which clearly undermined sterling. The main release today is the retail sales data which investors hope will show a 1.1% growth from last month's extremely poor reading of -2.3%. We also have the benchmark 10 year bond auction today which will reveal investors' confidence in the UK economy at present.

It was a mixed day for the euro yesterday as the current round of political uncertainty in Greece came to an end yesterday as a coalition government was formed made up of the New Democracy, Pasok and Democratic Left parties. While a coalition government has now been formed it remains to be seen if they will be able to renegotiate the terms of their bailout. The main data on the agenda today is the services and manufacturing Purchasing Managers' Index (PMI) across Europe which investors will hope show an improvement on last month's worse than expected release. In the background we have continued talk of how to reduce the stress on Spanish and Italian fund raisings as rates continue to be excessive.

The US dollar was under pressure in the run up to the Federal Open Market Committee's (FOMC) press conference, economic projections and monetary policy statement released yesterday. It was announced that the Federal bank will expand its "Operation Twist" programme (selling short dated bonds and buying long dated bonds to lower long term interest rates) by $267 billion. This is thought to be a softer form of monetary easing, rather than opting for a new round of quantitative easing. A busy day on the data front includes existing home sales data, Philly manufacturing index figures and the change in the number of people claiming unemployment benefits.

Elsewhere, the Norwegian krone performed well yesterday after its central banks left rates unchanged, while the Indian rupee weakened off to a five-year low against sterling. Quarterly GDP data from New Zealand was released late last night and Chinese manufacturing (PMI) was released first thing this morning. This afternoon we see the release of retail sales data from Canada while the Governor of the Bank of Canada is also speaking.

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