Today has seen sterling fall at a steady pace against the dollar
despite the U.S market holiday. Once again the UK has come under pressure from
poor PMI data and the expectations of further monetary stimulus from the Bank
of England (BoE) at their meeting tomorrow (Thursday).
Rates slipped back to a low of $1.5581 following a data
release that showed the UK’s
service sector had grown at a slower pace in June, cementing expectations the
BoE will add to the £325 billion they have already pumped into the UK economy. It
has been forecast the BoE will add £50 billion to their asset purchasing scheme
when policymakers meet on Thursday morning which could reduce the value of the
pound and cause exchange rates to fall further.
Growth in the UK’s service sector fell to it
lowest level for eight months in June, the sector fell to 51.3 compared to 53.3
in May and although the figure indicates some growth it was less than
originally expected. Today’s data follows poor construction and manufacturing figures
which will almost certainly lead to more quantitative easing tomorrow.
In the past a cash injection by the Bank of England has led
to the pound falling against a basket of currencies and tomorrows meeting could
have the same impact. However, the calls for more QE and the run of poor data
mean that if the BoE opt for further stimulus it will not come as a surprise so
we may not see the markets react as much as we have seen before. Tomorrow also
sees the European Central Bank (ECB) interest rate decision and if they cut
rates it could counteract any negative movements caused by QE.
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