BOE Quick Analysis: Three reasons to sell sterling as Bailey seems burned out

The BOE increased QE by £100, the lower bound of expectations.
Running through the program by year-end suggests slower support from Governor Bailey.
Chief Economist Andy Haldane's dissent also suggests bailout fatigue.

Is that all folks? The pound has recovered its pre-Bank of England losses but seems reluctant to bounce. It may now be headed down for these three reasons:

1) Only the minimum

The BOE met expectations by announcing it is expanding its bond-buying scheme by £100 billion. Its total support for the government's efforts to mitigate coronavirus now stands at £300 billion, yet may be insufficient and the UK's slow emergence from fighting the disease.

For the reaction in sterling, the "Old Lady" fell short of estimates of some participants which foresaw an expansion of £150 to £200 billion.

In the coronavirus era, more money printing is better for the underlying currency – at least in the case of the pound or the euro – as it funds fiscal relief and stimulus.

2) Tapering down already?

The BOE said it expects to run through its new funds by year-end and that implies a slower pace of purchases. Such a move means the government would also move more gradually – or suffer somewhat higher borrowing costs.

Andrew Bailey, Governor of the Bank of England, seems reluctant to "do whatever it takes" – and that does not bode well for the economy nor for sterling.

3) Surprising dissent

Andy Haldane, the bank's chief economist and usually a dove, surprised by voting against all the other eight peers in the Monetary Policy Committee (MPC) by rejecting further support. If he continues throwing his weight against the further stimulus, others may follow.

Conclusion

The BOE provided help to the government and the economy, but probably fell short of expectations – and of what is needed as the country struggles to return to normal from COVID-19 and amid Brexit uncertainty. GBP/USD has room to fall.

See everything about the BOE and the pound here.

Share: Analysis feed

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.