BOE Quick Analysis: More QE seems only a matter of time, GBP/USD has room to rise


  • The BOE left interest rates unchanged as expected and painted a dark picture of the economy. 
  • Two members wanted to expand the bank's QE program.
  • Additional monetary support may boost government spending and support the pound.

A sharp temporary slump with a slow recovery – that is the gist of the Bank of England's early morning rate decision – follow live . Governor Andrew Bailey seems to be out of the "V-shaped recovery" camp which continues shrinking. 

The situation is so worrying that two members voted to expand the bank's Quantitative Easing program beyond the already broad level of £645 billion – increased by 45% in the March decision. 

While only Jonathan Haskel and Micahel Saunders voted against the majority, Bailey stated the BOE is ready to do more. He added that there will be long-term damage to the economy and the effect of the lockdown could last for a full year. Moreover, the BOE foresees the economy shrinking by 14% in 2020. That is a dire scenario.

That lack of unanimity has come as a surprise and is supporting the pound. Money printing used to be an adverse development for currencies, as having more of something makes it worth less. However, in the coronavirus world, support from the central bank allows the government to boost the economy and thus is positive for the currency. Investors have seen this before and this may happen again. 

The combination of a gloomy picture and two members already voting to expand QE could prove positive for the pound, as markets will expect more monetary and fiscal support. 

 

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