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FX Day Trading - 7 October 2011
Bank of England to print another £75bn
ECB to provide banks with unlimited liquidity
All's well with the world
So it was that the Bank of England's decided yesterday to buy another £75bn of government and other bonds with money printed in its own factory.
Last time around, between March 2009 and February last year, the Bank made £200bn of "asset purchases". That "quantitative easing" was supposed to take up where lower interest rates left off, providing economic stimulus to prevent a double-dip recession.
Did it work? Well, the UK economy returned to growth six months later and gross domestic product in the second quarter of this year was greater by 1.7% compared with Q209. So, arguably, yes it did even if the connection between cause and effect is tenuous.
With that in mind the Monetary Policy Committee decided on Thursday to have another go. For long enough Adam Posen has been pushing for a second round of QE, favouring an extra £50bn of asset purchases.
His vindication came yesterday when at least four other MPC members crossed the house to support him and upped the ante by 50%. The Bank's statement cited "vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks" which "threaten the UK recovery".
Whilst the event of QE2 came as no particular surprise to spread betting investors, its timing and scale were unexpected. Sterling immediately fell by a cent or so against the whole field.
Its performance since then has been varied. Against the yen, the franc and the US and Canadian dollars it has recovered to yesterday's opening levels. Against the antipodeans and the euro it remains lower.
Shortly after the BoE move, the European Central Bank announced it would provide unlimited liquidity to Euroland banks at least until June next year. The ECB president studiously avoided the subject of conventional monetary policy.
He made no mention of anything remotely akin to "vigilance" on inflation, suggesting to many that the next rate move will be downwards.
Taking together QE2 in Britain, the ECB's provision of liquidity and the EU push to recapitalise banks, online spread betting investors decided the world was a less scary place. Everyone heaved a sigh of relief and equities and commodity-related currencies found renewed support.
As this eventful week draws to a close there is still scope for excitement with employment numbers this afternoon from the US and Canada. The consensus among analysts is that US non-farm payrolls will have risen by between 55k (Bloomberg) and 60k (Reuters) in September.
At anything like that level the number will not provide a ringing endorsement of US economic vigour. It will, however, mark the 12th consecutive month of employment growth (ignoring August's zero reading) and might be enough to keep alive the positive sentiment that has emerged in the last couple of days. Have a good weekend.
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The above content does not constitute investment advice, it is provided purely for information purposes and is delivered as a personal view of the writer. Neither the contributing company (or writer) nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the content.
'Online Spread Betting Market Rise as BoE Launches QE2', Article by Moneycorp, last update: 7-Oct-11
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