MW: Pound rallies on diminished prospects for more QE
In a surprise shift, Posen drops call to expand asset purchases
By Polya Lesova, MarketWatch
NEW YORK (MarketWatch) — The British pound rallied on Wednesday after minutes from the Bank of England’s latest meeting showed the central bank was less inclined to expand its bond-buying program.
Sterling GBPUSD +0.60% rose to $1.6027 against the U.S. dollar in recent trading, up from $1.5933 late Tuesday. Read more about currencies trading.
In a surprise shift, Adam Posen joined the majority of the nine-member monetary-policy committee to vote in favor of maintaining the Bank of England’s asset purchases at 325 billion pounds (around $519 billion), according to minutes from the committee’s April meeting released on Wednesday.
David Miles was the lone dissenter, calling for a £25 billion increase in asset purchases, though the minutes described his decision as “finely balanced.”
Posen and Miles had both supported a £25 billion increase in bond buys at the committee’s March meeting. Posen had aggressively advocated boosting the program in a series of dissents last year, with the committee eventually swinging to his point of view and restarting asset purchases in October.
“Posen changing vote is significant, because he has consistently been the most dovish member of the committee,” said Simon Wells from HSBC Bank in a research report.
The Bank of England has been buying assets, mostly gilts or U.K. government debt, in an effort to inject money directly into the economy and boost nominal demand. Asset purchases are known as quantitative easing, a policy that tends to weaken a nation’s currency.
The minutes released Wednesday make the Bank of England appear less likely to further expand its quantitative-easing program when the current round of purchases runs its course in May, strategists said.
“Faced with upside pressures to the inflation forecast and downside risks to the growth forecast, the MPC has accepted the former and clearly downplayed the latter,” said Sam Hill, U.K. interest-rate strategist at RBC Capital Markets. “The April minutes strengthen RBC’s forecast that the MPC will not vote for more QE at the May meeting.”
Also boosting the British pound was data showing an unexpected decline in the U.K. unemployment rate to 8.3% from 8.4%.
Polya Lesova is MarketWatch's New York deputy bureau chief.
