Does the Bank of England want a higher GBP?


The meeting minutes of the British Monetary Policy included a line which could imply satisfaction with the higher exchange rate of the pound.

These comments helped the pound recover. It was hurt against the dollar by fear of trouble in Chinese banks, and it also underperformed against the euro that kept surging higher. Is the BOE’s implicit will enough to help it sustain its recovery?

The MPC said that part of the appreciation reflects “positive data outturns in the United Kingdom”. So, Mark Carney and his colleagues seem to agree that the exchange rate is natural.

In addition, they said that the higher exchange rate will help fight inflation. Indeed, the recent past has shown that the UK has little to gain from a weaker exchange rate: it doesn’t really help exporters too much, and inflation is already higher than in many other developed economies.

The monetary policy of Carney and co. remains very loose: an interest rate of only 0.50% from early 2009, a pledge to keep rates low for a long time, and a significant QE program of 375 billion pounds.

While Carney already said that he doesn’t see a case for more QE, cutting the current level of stimulus isn’t on the cards. The MPC voted unanimously in favor of leaving the current policy unchanged.

The UK would probably need a few more quarters of strong growth in order for tighter policy to reach the public discussion.

Q2 growth was impressive: 0.7%. Expectations for Q3 are even higher: 0.8%. The initial read for Q3 is due on Friday. Even if expectations materialize, two quarters are not enough.

The UK was close to a triple dip recession in early 2013. The recovery still needs to be seen at full strength outside the construction sector.

Further reading: Sterling’s post minutes surge – a sell opportunity

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.


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