GBP/USD is now plunging  as the British Monetary Policy Committee decided to embark on more QE – Big time. An addition of 75 billion pounds to a total of 275 billion is at the high end of expectations, and at a low end for the pound. The interest rate remained at 0.50%, as expected.
GBP/USD plunged by almost 200 pips for the initial move, and is now bouncing back. It is currently holding above the lows of 1.5235 seen at the end of September. The swing low level of 1.5284, touched only for a short while, is the lowest level in more than a year.
As the committee decided on a policy change, a detailed statement was released. It acknowledged that inflation remains high, and may rise to 5%. Nevertheless, the committee expressed concern:
The pace of global expansion has slackened, especially in the United Kingdom’s main export markets. Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery
The program is expected to last for around 4 months.
In the recent meeting minutes published by the MPC, there was a growing agreement that more quantitative easing is on the agenda, although only one member voted for it: Adam Posen.
The timing of this move was not certain: October or November. Now we got the answer. The majority at the Bank of England, probably including Governor Mervyn King, voted for the big move. Regarding the members that voted for and against this decision, we’ll know on October 19th.
Towards the release, Pound/dollar was dropping after another attempt to conquer 1.55 or at least settle above the 1.5480 line.
Significant support turned resistance is at 1.5350. Further support is at 1.5230. Resistance is at 1.5530, followed by 1.5630. For more on the pound, see the GBP USD forecast.
Up to now, the British rate decisions were quite dull in comparison to the ones by the ECB. This time it was quite exciting.
We’ll soon know if the ECB will also loosen policy, perhaps with a rate cut, and then we’ll get the last press conference by Jean-Claude Trichet. See the ECB Preview for all the details to watch out for.
