Thursday, 4 August 2016

Pound falls as BoE cut interest rates as expected

As expected, the Bank of England have just cut interest rates to 0.25%, the first change in 7 years. What was not expected, was all 9 members saying they expect rates to be a 0% by the end of the year. They have also surprised the market by announcing £60bn in Quantitative Easing. All 9 members voted for the cut, but only 6 of them wanted QE, with 3 wanting to wait for more economic figures. The QE is more than the markets were expecting.

As I predicted this week, the Pound has weakened as a result, as you can see from today's GBP/EUR chart:


It wasn't a huge drop, about a cent from the high just before the decision. The reason it only fell this far is that the rate decision was expected and already priced in to the rate. However the fact there is another cut on the way and an increase in the QE measures mean the Pound could fall further in the coming months. Governor Carney gives a press conference in half an hour or so (12.45pm) and this could also affect the Pound further if his comments give further hints at more measures to come. I'll update this post later after he's spoken.

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