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Sterling highly sensitive to quantity easing programs

Friday, May 8th 2009 - 04:22 UTC
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The British pound fell sharply just after midday Thursday following the announcement from the Bank of England (BoE) that it was expanding its quantitative easing program by a further £50 billion. The move to expand QE from the original £75 billion to £125 billion sent sterling down against a host of currencies including the dollar and the euro.

Having opened at $1.5147, it rose against the US currency prior to noon's decision, hitting a high of $1.5199 in morning trading, before falling back to $1.5078 by 12:36pm. Market-participants said the unexpected expansion of QE hit sterling straight after the announcement.

Rob Woolfe, head of FX at ETX Capital, said: 'Sterling came under immediate selling pressure as it was announced that the QE program would be increased”. However, he said there remained support for sterling just below the key $1.50 level at $1.4980.

In a hectic day, the European Central Bank (ECB) also cut rates by 25 basis points to a record low of 1% shortly after the BoE statement, while announcing its intention to start it's own program of QE in June.

In reaction, sterling - which had already fallen from a high of €1.1412 to €1.1322 - took a further hit. By 15:36pm it was down over one-and-a-half cents, at €1.1221, from an opening level of €1.138.

Categories: Economy, International.

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