British Pound Sterling


The British pound sterling (Currency:GBP) has managed to recover ground lost against a host of key currencies following the release of the latest set of Bank of England MPC minutes.

The pound euro exchange rate is 0.03 pct up on Tuesday's closing level at 1.2405. (Latest pound euro forecasts published at our IMT site, access is free via this Facebook entry path).

The pound dollar exchange rate is 0.07 pct higher at 1.5737.

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The big news for the pound this morning is the release of the latest set of MPC minutes at the Bank of England.

Sterling direction has increasingly been driven by the view that the MPC will act and increase quantitative easing - an event that would lower the value of sterling because the supply of money into the economy is increased.

Today's MPC minutes indicate that another round of easing is certain. But, the reaction of sterling would indicate that traders have already priced this in.

The MPC voted 5-4 against extending QE purchases at the June meeting, much closer than the expected 7-2 outturn. Mervyn King, Adam Posen and David Miles voted for a 50bn extension, Paul Fisher for 25bn.

"In response to this we bring forward our forecast for 50bn of QE from August to July. Unanimity prevailed on Bank Rate and we continue to regard a cut as unlikely," says a note from RBS.

It is also clear from the Minutes that some of the five members voting for no change believe that further QE is likely to be required soon: 'On balance most members judged that some further economic stimulus was either warranted immediately or would probably become warranted.'

"Overall, more QE is coming in July (50bn) with further increases beyond that a clear possibility. The MPC's position on Bank Rate cuts has softened slightly but we do not expect any move here given the two credit easing initiatives (ECTR and 'funding for lending') unveiled by the Governor and the Chancellor at the Mansion House last week," say RBS.


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