Bounce in pound seen as temporary
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The British Pound continues to remain well supported in today’s trading session after yesterday’s decision by the Bank of England to keep interest rates on and its quantitative easing on hold which was an unexpected surprise for some market participants.
The Central Bank voted unanimously to keep interest rates unchanged at a record low of 0.1% and also decided to keep its quantitative easing program at £200 billion. Few in the market expected any changes in rates but some were caught off guard by the banks decision to keep the quantitative easing program as is and an increase of around £100 billion was expected.
However, the BOE did leave the door open for further loosening of monetary policy during a statement after the decision which is probably why the pound didn’t rally more than it should have in light of the positive news.
"For all members of this group, the prospective weakness in employment and inflation, and downside risks around aspects of the medium-term outlook, might necessitate further monetary policy action".
Some analysts also remain cautious about any further strength in the pound as the UK economy is expected to contract around -14% this year, which is on top of unemployment figures which are expected to come in at record numbers and an inflation figure that will remain well below 1%
"Although the Pound spiked higher on this outcome, the overall message was cautious by the central bank. There is a clear warning that confidence and productivity could take a bigger knock than expected as social distancing rules remain in place despite the gradual easing of lockdown." says George Vessey, Currency Strategist at Western Union.

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