The value of sterling has taken a big hit as the Bank of England has signaled more quantitative easing is likely.
The pound has fallen to a 15-month low against the euro, with an exchange rate of just €1.14. It is faring little better against the US dollar, with the exchange rate falling to an eight-month low of $1.53.
This equates to a drop of 7 per cent and 5 per cent respectively since the start of 2013.
Minutes from the BoE’s latest policy meeting have sparked fears of the effect that more QE would have on the economy, which is already bracing itself against the threat of a triple-dip recession. The notes from the meeting show that three of the nine committee members are now in favour of injecting more cash into the UK economy, compared to only one member in January.
Chris Saint, senior currency analyst at Hargreaves Lansdown, says policymakers seem increasingly willing to overlook the high level of inflation that is dogging consumers at the moment. The result of this is ‘further downward pressure on the pound as more QE becomes a realistic prospect’.
An additional concern is that the UK economy may be downgraded, says Richard Wiltshire, chief FX dealer at ETX Capital. He believes the lack of any sign of a ‘decent recovery’ and continuing uncertainty will add to investors’ bearish outlook. ‘If the UK does lose its AAA-credit rating then any last embers of a “safe haven” type environment would likely dissipate, especially if investors decide the eurozone and US are finally emerging from the doldrums,’ he adds.
