As I expected, the BoE left rates on hold at 0.5% this morning, and the ECB also cut rates by the expected level to bring rates to a record low of 1%.
The big news however which we correctly predicted, is that the BoE announced further measures of Quantitative Easing today. It announced that it will inject an extra £50bn into the UK economy.
With little room for rate cuts the Bank has been pumping money into the banking system through quantitative easing. As I mentioned in my last post, analysts and investors fears are based on how this money will be repaid. The government aer simply answering this question with their crazy forecasts for UK growth, which most other institutions including the IMF think are extremely optimistic. The reality will probably be a crippled UK economy and huge tax rises in coming years to repay our defecit - the largest for any major nation.
Click here to read the BoE statement in full
The effect on exchange rates
The pound fell against both the Euro by over a cent, and also fell against the dollar, as we warned it probably would. Clients with trading facilities open and ready to use were able to place Stop Loss orders and Forward Contracts to limit the loss. Clients that simply gambled without protective tools in place have lost out.
The Bank of England had not been expected to announce the further pumping of money into the economy until least next Wednesday when another set of UK economic forecasts is going to be published. But as we thought as you can see from yesterdays post, the announcement was made today and has hammered the recent gains the pound has made.
At the time of writing, the president of the ECB is making the post announcement speech, spelling out a much more cautious and measured approach to tackling the financial crisis, unlike the UK. Expect these comments to continue strengthening the Euro and continuing to bring GBPEUR rates down.
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