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No Change in QE for BoE - Pound Holds Gains

Last updated 10/8/2009 7:30 AM ET (GMT -5) 11 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Aa expected the Bank of England left its overnight rates at 0.5% and kept the quantitative easing program at 175 Billion pounds. The Bank maintained its neutral language with respect to QE noting that, “The Committee expects the announced program to take another month to complete. The scale of the program will be kept under review.”

The terse four sentence statement offered no fresh insight to the market as the MPC appeared to have pushed any policy decisions out to November when the BOE’s quarterly inflation report is due to be published. UK monetary authorities remain boxed in by inconclusive economic data which shows mild, but consistent improvement in the service sector on one hand, but   a slide back to contraction in manufacturing on the other. Last Tuesday’s horrid Industrial Production data which declined by -2.5% versus 0.1% eyed was the catalyst for more sterling weakness earlier in the week.

However, today’s announcement by Llyods group that it intends to file for a rights offering that may help it escape the UK Asset Protection Scheme earlier than the market had anticipated was taken very positively by the market.  It was the first sign of relief for the beleaguered UK Treasury as public capital will now be replaced by private funds.

This shift in sentiment has helped to lift the pound above the key 1.6000 level earlier in the day and the latest MPC news which was essentially neutral in nature has not  damaged the rally. GBP/USD initially spiked to 1.6096 in reaction to the news but has since settled at the 1.6050 level.  Trading in the pair for the rest of the day could be dictated by EUR/GBP flows as markets gear up for the ECB press conference. Chatter before the event included speculation that President Trichet could deviate from his normal rhetoric to address the imbalance in currency exchange rates as EUR/USD approaches the 1.5000 level. If that indeed were the case EUR/GBP could tumble further and cable should outperform for the rest of the day.

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Comments (11)

Lu

October 08, 2009 at 09:47 AM ET

what is going to happen with the pair EUR/GBP with this scenario?

pipchaser

October 08, 2009 at 09:57 AM ET

Boris..I'm surprised you didn't have a recommendation for EUR/USD the past two days..there was a bullish gartley forming according to the "searching pattern indicator"..I gained 80 pips yesterday alone, now it's coming back down, but I'm not confidant I know where the bottom will be??/

bschlossberg

October 08, 2009 at 09:59 AM ET

I think you are confusing me with Brad. I dont do Gartley analysis

hsbc

October 08, 2009 at 10:20 AM ET

classic. maybe both of you look alike

bschlossberg

October 08, 2009 at 10:25 AM ET

hsbc our pics are on the website - what do you think ? :)

hsbc

October 08, 2009 at 10:33 AM ET

hahah. anyway i think the mkt is back to old mode now. aud looks like a buy dip while gbp should rally more should it surpass 1.6130.

Lu

October 08, 2009 at 11:11 AM ET

Any ideas what is going to happen with the pair EUR/GBP with this scenario?

hsbc

October 08, 2009 at 11:31 AM ET

i think with trichet sounding nervous over eurusd, eur may lag somewhat while gbp has seen most bad news come and go. so i think this may cause eurgbp to fall. techinical wise i think eurgbp may head towards 0.9080.

Lu

October 08, 2009 at 12:57 PM ET

hsbc I was thinking more like .8925-8950 range!!! Thanks for the feedback!!!

FXDragon

October 11, 2009 at 04:54 PM ET

It better not!! I've been long since Sept. and intend to stay that way. Ecb will raise int. rates before boe and uk has deeper financial problems.

mac

October 09, 2009 at 03:00 AM ET

Hello there - what is the pattern searching indicator and where can I find it?
Pipchaser mentioned it above1

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.