Value of pound drops while Bank of England tackles rate raise

The value of the pound has dropped dramatically as the Bank of England officially announced the markets were incorrect to believe that interest rates would rise. The results have meant the pound is now a cent and a half against the dollar to $1.5141.

Simultaneously, the interest rate remained at 0.5% whilst keeping the quantitative easing programme the same. All decisions were made by Mark Carney in his first Monetary Policy Committee meeting since replacing Sir Mervyn King as governor.

The FTSE index leapt by 50 points whilst gaining a further boost from a promise made by European Central Bank who claimed to keep Eurozone rates low, meaning they achieved 3% upwards for the day.


Positive energy

There have been claims of a recovering economy during this period in several areas of the market. Halifax released statistics which show house prices have risen by 3.7% more in the past three months than they did in the previous year, whilst specifically stating that the housing market is starting to improve, predominantly in the South East.

Meanwhile, several industry surveys have found that various other markets are starting to improve, despite the statement released by the Bank’s Monetary Policy Committee.

However, despite these seemingly positive statistics, the MPC has said that recovery “remains weak by historical standards and a degree of slack is expected to persist for some time.” At the same time, the improvements have been hindered by the increase of long-term borrowing costs, a phenomenon that took the central banks by surprise.

“The key aspect from the report is a continuing divorce of priorities at the Bank of England from inflation targeting to supporting the economic recovery.” Commented recently a spokesperson from City index

It is for these reasons the Bank decided to keep the interest rates as low as they have been since March 2009, with the MPC saying: “The implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.”

High expectations

The belief of a higher rate followed the markets producing plans for the major economies, which includes the UK and USA, depicting their expectations of interest rate increases. This was spurred on by the US Federal Reserve stating their plans to remove their QE programme.

This all signified to the marketers that the ‘era of cheap money’ was coming to an end. However, the Bank of England was quick to counteract these expectations of the sterling market by announcing their plans with the interest.

Despite these statements, the Bank of England may still raise interest rates by a quarter-point within the next 12 months, if the theories are to be believed.

Rise in trading

These seductive market rumours are resulting in an increase in Forex Trading, a trading system which allows users to benefit from predicting the rise and fall of currencies in the market. As some of the key influences in this type of trading include political and economic stability, monetary policy, currency intervention and natural disasters, it’s easy to see why the current rumours are causing an increase in this particular form of trade.

photo by tax credits