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6 Mar 2014
Sterling dips from four-year highs but longs remain
FXStreet (London) - GBP/USD remains close to four-year highs, trading sideways after the Bank of England's decision this morning to hold rates while maintaining its bond purchase programme at current levels.
The pair climbed to a high of USD1.6752, challenging the four year USD1.6823 high posted on 17 February.
Gilt reinvestment
The Bank of England held rates at 0.5 percent as universally expected, and maintained its bond buying programme at GBP375bn. In a statement, the BoE announced that MPC has agreed to make GBP8.1bn of gilt purchases, financed by central bank reserves, to reinvest the cash flows associated with the maturity on 7 March 2014 of a gilt owned by the Asset Purchase Facility (APF).
Operations to make these gilt purchases will commence in the week beginning 10 March 2014. The range of gilts eligible for purchase will remain unchanged. The Bank intends to hold operations according to the following schedule:
- Monday 10 March, gilts with a residual maturity of 3-7 years;
- Tuesday 11 March, gilts with a residual maturity of over 15 years;
- Wednesday 12 March, gilts with a residual maturity of 7-15 years;
- Monday 17 March, gilts with a residual maturity of 3-7 years;
- Tuesday 18 March, gilts with a residual maturity of over 15 years;
- and Monday 24 March, gilts with a residual maturity of 7-15 years
Sterling running out of road
Sterling has now appreciated 12 percent year-on-year against the dollar, the strongest of the G10 currencies.
But while sterling has pushed through the headwinds forecast for this quarter, it may be running out of room for further appreciation. The impact on consumer spending caused by persistent real wage declines has largely failed to manifest in a significant way, with inflation being brought into line this year with the BoE's 2 percent target for the first time in more than four years, while a consistent strengthening of the labour market has begun to push up on wages.
GBP/USD is currently trading at USD1.6718.
The pair climbed to a high of USD1.6752, challenging the four year USD1.6823 high posted on 17 February.
Gilt reinvestment
The Bank of England held rates at 0.5 percent as universally expected, and maintained its bond buying programme at GBP375bn. In a statement, the BoE announced that MPC has agreed to make GBP8.1bn of gilt purchases, financed by central bank reserves, to reinvest the cash flows associated with the maturity on 7 March 2014 of a gilt owned by the Asset Purchase Facility (APF).
Operations to make these gilt purchases will commence in the week beginning 10 March 2014. The range of gilts eligible for purchase will remain unchanged. The Bank intends to hold operations according to the following schedule:
- Monday 10 March, gilts with a residual maturity of 3-7 years;
- Tuesday 11 March, gilts with a residual maturity of over 15 years;
- Wednesday 12 March, gilts with a residual maturity of 7-15 years;
- Monday 17 March, gilts with a residual maturity of 3-7 years;
- Tuesday 18 March, gilts with a residual maturity of over 15 years;
- and Monday 24 March, gilts with a residual maturity of 7-15 years
Sterling running out of road
Sterling has now appreciated 12 percent year-on-year against the dollar, the strongest of the G10 currencies.
But while sterling has pushed through the headwinds forecast for this quarter, it may be running out of room for further appreciation. The impact on consumer spending caused by persistent real wage declines has largely failed to manifest in a significant way, with inflation being brought into line this year with the BoE's 2 percent target for the first time in more than four years, while a consistent strengthening of the labour market has begun to push up on wages.
GBP/USD is currently trading at USD1.6718.