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Pound slumps on rate cut
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Published on 04.08.2016 19:44

The pound fell heavily today as the Bank of England slashed interest rates and decided to increase their stimulus package to boost the economy.

At 5.34pm (GMT) the British currency was trading at US$1.3124c against the US dollar, down more than 1 percent from yesterday’s close of US$1.2222c.

Although a rate cut was widely expected by the market the increase in stimulus by 79 billion to 435 billion pounds came as little bit of surprise. 

“The BOE clearly is willing to provide an array of stimulus policies because it thinks that the U.K. economy is going to face substantial headwinds from Brexit,” said Peter Frank, global head of Group-of-10 currency strategy at Banco Bilbao Vizcaya Argentaria SA in London.

“I think the BOE and the government is keen to see a much weaker pound.” He added.

Many feel that the banks stimulus move was only the first step of many as the economic situation evolves and it’s only a matter of time for another round of quantitive easing which will further pressure the pound,

“We feel this is an appropriate first step and anticipate further easing from the MPC in the coming months as the growth outlook becomes clearer,” said David Zahn, London-based head of European fixed income at Franklin Templeton Investment Management Ltd.

“This is good news as it is supportive of the bond market. However, in general this will be slightly bearish for the pound.” He added.


Andrew Masters

Analyst

The power of leverage is the power of Forex.
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