Pound Appreciates As BoE Saunders Signals Early End To QE Program
July 15 2021 - 5:56AM
RTTF2
The pound climbed against its major counterparts in the European
session on Thursday, after Bank of England policymaker Michael
Saunders hinted at the likelihood of ending its bond buying program
soon to counter the spike in inflation.
Economic activity appeared to have recovered a little faster
than the central forecast in the monetary policy report released in
May and the output gap is likely to close soon, Saunders said in a
speech.
There is "clear evidence" that GDP has regained most of the lost
ground in recent months, spare capacity in the labour market is
declining, and the economy continues to grow rapidly. GDP is likely
to regain pre-pandemic peak in the "next few months", Saunders
added.
Core inflation is no longer below target and it is forecast to
rise further in the coming months.
"If activity and inflation indicators remain in line with recent
trends and downside risks to growth and inflation do not rise
significantly, then it may become appropriate fairly soon to
withdraw some of the current monetary stimulus in order to return
inflation to the 2% target on a sustained basis."
Saunders further indicated that options to withdraw stimulus
include halting the current asset purchase program in the next
month or two and before the full £150 billion has been purchased;
and further monetary policy action in 2022.
The currency was weighed by a spike in COVID-19 cases in the
U.K. earlier in the session.
The number of coronavirus cases in the country crossed the
40,000-mark on Wednesday, touching 42,302.
Data from the Office for National Statistics showed that the UK
employment increased in three months to May signaling that the
labor market continues to recover.
There was a quarterly increase in the employment rate of 0.1
percentage points to 74.8 percent.
At the same time, the ILO unemployment rate decreased 0.2
percentage points to 4.8 percent. In three months to April, the
jobless rate was 4.7 percent.
The pound climbed to a 2-day high of 1.3899 against the dollar,
after falling to 1.3813 at 3:45 am ET. If the pound continues its
rise, 1.41 is possibly seen as its next resistance level.
Recovering from its early 6-day lows of 151.61 against the yen
and 1.2619 against the franc, the pound edged higher to 152.81 and
1.2724, respectively. The pound may find resistance around 154
against the yen and 1.29 against the franc.
The pound reached as high as 0.8511 against the euro, up from a
6-day low of 0.8568 seen at 4 am ET. The pound is likely to find
resistance around the 0.84 level.
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