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GBP/USD: BoE and the Fed will cease bond purchases

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  • BoE leaves rates and asset purchases unchanged as it warns on inflation.
  • Fed and Chairman Powell set the stage for gradual tapering of bond purchases.
  • GBP/USD falls below 1.3700 on Friday.

Two meetings this week indicate that the Bank of England (BoE) and the Fed are planning to taper and then end their extraordinary bond purchases. Sovereign and commercial interest rates have been held near historic lows since last March because of these programs.

GBP/USD

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On Thursday, the Monetary Policy Committee (MPC) voted 8-1 to keep the main rate at 0.1% after the option to reduce the £875 billion asset line received two additional votes.

After falling from 1.3741 on Monday to 1.3622 on Wednesday, GBP/USD soared to 1.3721 on Thursday following the BoE meeting.

Despite Chairman Powell’s remark that most members thought the criteria for a reduction in bond buying were met, the Fed’s meeting on Wednesday drew only a minor reaction in currency and credit markets. For the first time since the pandemic began 19 months ago, the central bank forecast a rise in funds rates next year.

GBP/USD dropped below 1.3700 after a reversal in US Treasury yields later that same week.

The BoE and Fed are moving towards the end of their pandemic economic support. For the moment, the Fed seems to be leading, and that will constrain sterling until the Old Lady catches up.

For the UK, the BoE meeting was the only market development of note. The purchasing managers’ indices for the services and manufacturing sectors for September were weaker than expected but remained firmly in expansion.

Stocks recovered from Monday’s massive sell-off in response to developments in China and returned to last week’s level on Friday. 90% of the US housing market performed as expected in August, and initial jobless claims rose for the second week in a row, but neither affected markets.

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Michelle D. Madsen

Michelle D. Madsen graduated from the University of Westminster and has been deeply involved in the world of finance ever since. She has worked as a Broadcast Journalist hosting various news shows and informative webcasts about the financial markets. Since 2004 she has also been writing for Metanews daily, her attention to detail, and her in-depth knowledge of the financial markets have led her to cover Foreign Exchange and commodities. The world of finance has changed in the last few years with the introduction and rising popularity of cryptocurrencies. She has in no means been left behind, adding this to her bank of intellect and is now also an expert in cryptocurrencies. For the last ten years, Ms. Madsen has been engaged in the financial market. She has notedly written a great number of incredibly informative reviews for the crypto exchange and forex brokers. Her wealth of knowledge has enabled her to become a leading expert in the field. She continues to inform the public writing up-to-date, thorough reviews for the readers of Metanews as she has for the last decade.
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