EN:British Pound Sterling: Currency at risk of further money printing
The pound euro exchange rate is 0.220% higher on the day with 1 GBP = 1.1380 EUR.
The pound dollar exchange rate is 0.238% lower with 1 GBP = 1.6363 USD.
The pound Australian dollar exchange rate is 0.212% higher with 1 GBP = 1.5696 AUD.
The British Pound continues to be pushed around by traders who are continue to react to the prevailing attitude to risk.
This morning traders are moving out of risk associated assets such as the euro. They are moving capital into the US dollar, and the British Pound sits in the middle of this equation, hence the above figures.
Looking at the long term trajectory of the British Pound though it is clear that a key risk remains in the form of more money printing at the Bank of England.
Bank of England MPC Member Miles said there could be circumstances in which he would think further asset purchases would be warranted, but added “that's not how I've seen things thus far." He said that the UK economy is "on a recovery path, but it's fragile." The MPC minutes are due this week and we look for a dovish outlook and no change in the voting split.
Bank of America have looked at the forecast for the pound based upon the possibility that the Bank of England embarks on another round of money printing (quantitative easing). Quantitative easing is pound-negative, so any hint that the printing presses are to churn out more currency will see investors abandoning the pound.
The possibility certainly stands; however Bank of America analysts suggest resorting to quantitative easing to boost the economy is dangerous considering the outlook for inflation:
"The BoE’s projections with interest rates unchanged throughout the next couple of years – broadly what is priced into the market now – showed a central path of CPI inflation falling back to very close to target over the medium term. But given the downside risks to economic prospects that have emerged alongside the deterioration in financial markets over the last few days, there are potentially risks that QE could be expanded again, in our view.
