The minutes of the Monetary Policy Committee of the Bank of England that took place on April 8th and 9th last were released yesterday. The members took a more positive tone on the prospects for a rise in inflation which, as with central bankers on both sides of the Atlantic, will hasten the day when they feel able to raise core interest rates. For now, though, they are to be kept on hold. While UK Quantitative Easing is not being increased, the bonds purchased when it was active are being retained. When the day comes that the BoE decides to liquidate these assets, it will signal a return to normality that has been a long time coming.
Good for Sterling, but helping the Euro too
The big takeaway from the minutes was the comments that were made in relation to the prospects for the Eurozone, which is an important market for the UK. The minutes noted that
“…economic data releases […] had generally surprised to the upside in the euro area and to the downside in the United States”.
There was much more in this theme. For example:
“Over the month there had been continuing signs of momentum in euro-area activity…”
“In the euro area, indicators had suggested a strengthening economy”.
This was not lost on the Forex market participants yesterday. While the minutes could be expected to strengthen Cable (GBPUSD), and the Euro can always be seen to rise in sympathy, the Single Currency had a very favourable few hours in the period immediately after the release.
This would have been facilitated by the fact that there are, apparently, many traders and economists, particularly in the United States, who see Quantitative Easing in the Eurozone as having a short life span. This is surprising. QE in Japan has been in place for a generation, and when it was implemented in the US itself it lasted for a number of years. It was only introduced by the ECB a short few of months ago.