Foreign Currency Insight : GBP USD Rate Spirals as Fed Chairman Ben Bernanke Raises the Possibility of Further US Quantitative Easing

14 Jul 2011 at 5 AM - Written by John Cameron

STORY LINK Foreign Currency Insight : GBP USD Rate Spirals as Fed Chairman Ben Bernanke Raises the Possibility of Further US Quantitative Easing

The Pound Euro exchange rate (GBP EUR) is 1.1355. The Pound Dollar exchange rate (GBP USD) is 1.6150. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5028.

The US Dollar plummeted during yesterday afternoon’s European session following Federal Reserve Chairman Ben Bernanke’s Semi-annual speech on monetary policy to Congress.

Bernanke painted a dismal picture of the prospects for the US’s economy over the medium term, stating that current levels of US inflation were ‘transitory’ and that the US economy would only grow moderately over the remainder of 2011.

But Bernanke’s speech delivered a real sting in the tail when he stated that the Fed is willing to ramp up its quantitative easing scheme following the expiration of QE2 at the end of last month. These words caught market participants on the back foot; analysts had put thoughts of an extension to the US’s QE programme on the back burner following a failure by Bernanke and other US policy-makers to mention it as a possible option over recent months.

The GBP USD rate had spent the day bumping around the 1.5950 level leading up to Bernanke’s statement, but as soon as the Fed Chairman made mention of a further loosening of US monetary policy, the rate rapidly broke through to above 1.6100 to trade as high as 1.6193 during last night's Asian session.

Elsewhere, the IMF issued a statement calling for Italy to implement stringent spending cuts, leading analysts to draw parallels between Italy and Greece’s debt situation. The IMF’s statement caused downward pressure on the Euro, but this failed to cause a significant move higher for the GBP EUR rate as Sterling also came under selling pressure due to patchy UK labour market figures for June which showed the largest rise in claimants of Job Seeker’s Allowance for two years.


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