THE TAKEAWAY: MPC voted 8-1 against expanding stimulus -> Minutes reveal doubts over QE -> Sterling trading slightly higher
The Bank of England has begun to question the impact of its two main policy tools, according to today’s release of the minutes from the central bank’s last meeting.
Eight out of nine Monetary Policy Committee members voted to keep the asset purchase target unchanged at 375 Billion Pounds, despite the fact that the spending on quantitative easing is likely to be finished in the upcoming weeks. Also, the minutes said that it is unlikely that the BoE would cut the interest rate in the foreseeable future. BoE’s Miles was the only one to vote for a 25 billion Pound expansion of the quantitative easing, as the minutes said there was a question over the magnitude of the effect of lower yields and higher asset prices.
However, the minutes also said that the case could still be made for more stimulus, and the BoE sees a small contraction in the Q4 gross domestic product. The central bank forecasted that inflation will remain above its 2% target because of college fees and energy prices.
The comments pointed to a decreased chance of stimulus expansion in next month’s meeting and therefore sent Sterling slightly higher against the US Dollar in forex markets. GBPUSD saw an initial twenty point rise to 1.5930 before the momentum died off and erased most of the gains. Support could be provided by a 5-month trend line around 1.5880; resistance could be provided by the key 1.6000 level.
GBPUSD 15-minute: November 21, 2012