Friday, May 8th 2009 - 04:22 UTC

Sterling highly sensitive to quantity easing programs

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.

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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.