Sterling falls to it lowest levels for two months against the dollar, could there be more QE from the Bank of England?

Wednesday saw sterling fall to its lowest levels against the greenback for two months as investors pulled out of the pound and single currency (euro). For the second consecutive Wednesday all eyes were focused on the UK as the Bank of England released the minutes for their most recent meeting, we also had Retail Sales figures due which are a good indicator to how the UK economy is shaping up.

There was a sharp decline in pound/dollar rates as the minutes and sales data was released, rates fell to $1.5683 the lowest since mid-march as investors headed back to the U.S dollar.

The minutes from the Bank of England’s (BoE’s) policy meeting indicated that members voted 8-1 against further monetary stimulus. With only one policy member voting for another round of quantitative easing (QE) initial thoughts would have been that the vote was not very tight, but a closer look would reveal the decision was ‘finely balanced’ for a number of the committee members. This has left the door open for further stimulus and as a result did not lend as much support to the pound as perhaps could have been.

The UK retail sales data released today will have also given BoE chiefs further food for thought. Sales volumes fell by 2.3% in April according to the Office for National Statistics (ONS), though some analysts feel the figures were distorted by April’s record rainfall and the sale of fuel dropping by 13.2% on the back of drivers panic buying in March over the threat of strike.

Another reason for exchange rates hitting a two month low is the concerns surrounding Greece and their potential exit from the euro-zone. With just under a month until the Greek elections investors are caught in two minds so currently see the U.S dollar as the safest place for their money, and while the uncertainty remains it is unlikely we will see GBP/USD push back towards the $1.60 mark.

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