British Pound Sterling

The pound sterling (Currency:GBP) has weakened against the majors this morning, this after the Bank of England minutes showed that four members of the MPC voted to expand additional stimulus measures this month.

Looking at the spot rates we see the pound euro exchange rate is 0.18 pct down on a daily basis at 12274 at 9:50 AM in London.

The pound dollar exchange rate has moved 0.03 pct into the red at 15720. The pound Australian dollar rate is 0.12 pct down at 15420. Please note our latest pound euro forecasts are available on our IMT site, access is via this Facebook entry path.

The committee was split 5-4 in favour of not sanctioning further quantitative easing in June and given the recent rhetoric from Mervyn King, combined with the drop in inflation and slowing economic growth, the chances of action in July have increased exponentially.

The Pound has suffered a kneejerk move lower against the majors and volatility has increased as the market prices in an increase to the bond-purchasing plan next month. However, other central banks are also looking to expand stimulus measures and that may limit the Pound’s decline to a degree.

Yesterday was characterised by strong gains in stocks and risk-on currencies thanks to growing consensus that the US Federal Reserve is to also expand the money supply.

"Market expectations continue to build that Wednesday’s FOMC meeting may produce yet another round of balance sheet expansion, boosting risk currencies like AUD and NZD to unsustainable levels. Our US economics team are sceptical and do not expect any further money creation, although they do expect the policy language to change to indicate the Fed’s greater readiness to ease in future if required, especially given the increased risks to the outlook arising from the Eurozone crisis. A temporary extension of Operation Twist cannot be excluded either," says Gareth Berry at UBS.

If that is all the Fed delivers, we would expect the US dollar to clawback much of the losses seen over the past 24 hours.

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