By William Doody
The Bank of England’s Monetary Policy Committee surprised many observers Thursday by increasing the size of its quantitative easing measures by an additional £50 billion. While the MPC’s decision to maintain its overnight lending rate steady was widely expected, most analysts had predicted no change to the QE program. This was especially the case after the BOE left the program untouched at its last policy meeting in July, when an increase was actually expected. So after calling for an increase in easing measures in July and then calling for no increase in August, and both times being wrong, observers of the Bank of England have to be recalculating their predictions for the remainder of the year.
Surprisingly, the Pound remained relatively stable despite the unexpected move by the BOE. This strength should unquestionably taken as a positive sign moving forward. While the MPC’s decision is itself a rather striking negative for the Pound, Sterling’s resilience needs to be respected. England is clearly the weakest of the major western economies and the BOE’s aggressive, if unpredictable, monetary policy reflects that unpleasant reality. Still, the Pound has appreciated against the Dollar and remained steady against the Euro.
From a purely fundamental point-of-view, we would be sellers of the Pound. However, this is a case where the currency’s underlying technical strength clearly outweighs the fundamental analysis. For this reason, we would take only very small positions against the Pound.
GBP Fundamental Analysis-7 August 2009
DailyForex.com