Sterling jumped against the dollar after the Bank of England kept interest rates on hold at 0.50 percent and left its monetary policy unchanged. The asset purchase program was kept at 325 billion pounds as the bank opted against injecting more stimulus.
The pound was given an additional boost after the PBOC (central bank of China) at the same time announced that it cut both lending and borrowing rates by 25 basis points, its first rate cut since the depths of the 2008-09 financial crisis.
GBPUSD surged to a high of 1.5567 within less than an hour of both data. Most risk currencies, like the euro, aussie, Canadian dollar all rose in reaction to the news from China.
Philip Shaw, an economist at Investec commented on the Bank of England policy decision:
“While some recent indicators have hinted at further weakness in the economy – last week’s manufacturing PMI was a case in point – the evidence has not been so dire that the MPC has felt compelled to ease again.
“Indeed May’s reading of 53.3 for the services PMI … may have helped to convince the committee that the economy is not heading towards a 2008/09 type slide.
“But we consider that it would be wrong to rule out more QE. The crisis in the Euro area poses a number of very obvious downside risks to the British economy.