08, February 2013

GBP/USD (a 4-hour chart)

GBP/USD (a 4-hour chart)

Yesterday after meeting of ECB and the Bank of England's interest rate was fairly smooth. The Central banks tend to expect more data to assess the impact of their recent actions before making a decision about further movements.

All the experts agree that the ECB put off the decision till February. While Mario Draghi recently noted that the situation in the European financial markets have improved thanks to the measures by the ECB in 2012, analysts are skeptical that it is a signal to the end of the crisis.

General expectations for the decision of the Bank of England was the fact that there would be changes in the monetary policy, although some analysts believe that there will be little opportunity for further expansion of the program QE.

Ahmed Mamdouh assumes that interest rates and the amount of asset purchases should be left unchanged this month, as the Bank of England "still believes in his program FLS, which is a favorite instrument of policy banks to maintain credit to households and businesses, especially in inflationary concerns. "

Catherine Stephan added that the central bank "will be waiting to learn about the effectiveness of additional asset purchases to further change monetary stimulus."

GDP disappointed analysts. The recent decline of the pound reflected the pair week, but not enough to allow exporters to take advantage of this to a large extent. The weak pound could push import prices higher, and the inflation is still too high.

Soon King will replace Mark Carney as the new head of the Bank of England Inflation will soon become a key focus, and growth will remain weak for the foreseeable future.

Of course, fear dipping into recession, increasing the chances that the Bank of England will not have any other choice but to consider the expansion of its asset purchase program, while maintaining the interest rate at a record low of 0.50%. The pound came under pressure in recent years and could fall even further if the market will increase QE from the Bank of England.

The Bank of England is stuck between a rock and a hard place. There is a small chance that the Bank of England announced an increase in QE. Mervyn King and his colleagues might have to wait a month to assess the complex consequences. If QE is announced, you can expect a sharp but temporary drop in GBP/USD. Previous ads have turned into long-term trend.

QE may not be the best tool for the moment, to fix what ails the UK economy.

The Bank of England has its hands tied and completely lost the ability to control inflation, which remains high (2.7% in December 2012). So the rate reduction or a new program of bond purchases will not help to maintain price stability. Thus, perhaps, the Bank of England should consider changing its primary goal and focus on economic growth and employment, not inflation, is something similar to what the Bank of Japan did in January.