Sterling jumped against the dollar in a knee-jerk reaction after the Bank of England announced that it maintained the key interest rate at 0.5 percent but increased size of Asset Purchase Programme by GBP50 billion to GBP 375billion. This was in line with expectations.
Although an increase in stimulus is usually currency negative, cable rallied immediately after the announcement since in current economic conditions more stimulus is good, to help the UK battle the stress placed on the its economy by the European debt crisis. This helped boost risk appetite.
GBPUSD spiked to 1.5604 from 1.5563 before the BoE announcement. Against the euro, sterling rose , resulting in EURGBP falling to 0.8035.
In reaction to the news, Paul Robinson, Head of European FX Research at Barclays said:
“This is mildly positive for sterling. Even though 50 billion was the consensus forecast quite a few people saw a risk of it being greater than that. Some people were thinking they might cut the actual interest rate for the first time in a long time.
“So even though they have loosed, relative to expectations it’s slightly less than some people were looking for. The appreciation in sterling since then is consistent with that.
“What really matters going forward is what the ECB does.”