More UK QE Off The Menu For Now, Sending Sterling Higher Against The Euro And US Dollar

Published: Thursday, 22 March 2012 09:00 BST - Written by Minesh Chaudhari

STORY LINK More UK QE Off The Menu For Now, Sending Sterling Higher Against The Euro And US Dollar

Sterling stepped into the spotlight during yesterday’s session in the currency markets, as a raft of key UK data releases and risk events hit the headlines.

The day started with mixed messages regarding the British economy, with the release of official government figures which showed that the UK’s Public Sector Net Borrowing requirement hit a mammoth £15.2bn last month, against market expectations of a £8bn print. This sent out a strong signal to the markets that Britain’s coalition government is a long way from bringing the country’s public finances under control.

The minutes of this month’s Bank of England monetary policy committee meeting were also published yesterday morning. They provided some positive news for investors holding Sterling-denominated assets, showing that only two of the nine-man committee, committed doves Adam Posen and David Miles, had voted for an extension to the £325bn currently allocated to the Bank’s Quantitative Easing programme. This implies that the next loosening of monetary policy by Britain’s central bank could be some time off.

Later on yesterday, the UK Chancellor George Osborne, presented his Budget Statement to parliament. In amongst all of the usual tinkering with tax thresholds and tobacco duties, there was one significant adjustment to the government’s macroeconomic forecasts for the British economy. Osborne announced that he was upwardly revising his GDP growth forecast for the UK economy for 2012 from his previous estimate of 0.7% up to 0.8%, whilst cutting his public borrowing forecast for the year by £1bn.

Meanwhile, figures released overnight in the Far East also painted a mixed picture, with the latest HSBC PMI survey in China showing a decrease in economic activity for the fifth month in succession in the giant Chinese economy. This spells bad news for risk sensitive currencies including the Australian and New Zealand Dollars. However, the negative data from China was mitigated by last night’s Japanese trade figures, which showed that Japan’s economy had registered an unexpected trade surplus last month.

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