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Pound jumps after MPC minutes show 9-0 vote to hold QE

 

 

The pound has jumped after the Bank of England released minutes from its July meeting of the monetary policy committee (MPC).

 

Policy makers voted 9-0 in favour of keeping the stimulus programme at its current level, the minutes show.

 

The July meeting was the first to be chaired by new governor Mark Carney.

 

Two members of the monetary policy committee (MPC) had voted to expand the quantitative easing programme at the previous meeting in June.

 

However, some members said the case for more stimulus was "warranted".

 

Paul Fisher and David Miles had backed an extra £25bn of asset purchases in recent months, along with former governor Sir Mervyn King.

 

But according to the minutes, the members who would have voted for more stimulus were prepared to wait while the committee explored other options over the next month.

 

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Mark Carney is encouraging the Bank's policy makers to think about their policy tools in a more holistic way than Sir Mervyn King did”

 

Quantitative easing is a bond buying programme designed to boost the economy.

 

The last increase to the programme came in July 2012 when the MPC announced the purchase of £50bn worth of assets, which brought the total purchases to £375bn.

 

The pound jumped against the dollar following the release of the minutes as investors took the view that more monetary easing was less likely, and at one stage hit $1.5247 before dropping back slightly.

 

The pound was also boosted by better-then-expected UK jobs figures, with unemployment down 57,000 to 2.51 million in the three months to May.

 

Forward guidance

Ilya Spivak, currency strategist at DailyFX, said: "The 9-0 represents a stark difference from the 6-3 polls at recent Bank of England meetings and suggests new Governor Mark Carney was able to unite the committee behind the idea of delivering stimulus via Fed-style forward guidance rather than outright intervention into the markets.

 

"The markets appear to be signalling their disappointment with stimulus by rhetoric versus direct pressure on rates," he said.

 

It is thought that Mr Carney favours forward guidance to boost confidence. The idea is that business and consumers will be more likely to borrow if they know that interest rates are going to remain low.

 

Vicky Redwood, chief UK economist at Capital Economics, said in a note: "Some members still think more stimulus is required and just wanted to wait for August's inflation report, when a range of policy options would be discussed.

 

"Nonetheless, it perhaps looks as though a more formal form of forward guidance is as much as we will get next month."

 

The MPC said there were signs that the economy is strengthening but the performance depends on consumer activity.

 

"Growth in the second half of the year would depend in large part on the behaviour of the household sector," the minutes said.

 

But it noted that income growth was "weak" and that could hold back spending.

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Just checked the currency rates and the pound has dropped to below 1.16 against the euro, so not a particularly good time to buy. Funny, isn't it, if the British economy really is so much stronger than that of the euro zone, as some claim, that the pound is not performing very well against the euro?

 

 

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It has risen 1 cent on the official rate but of course that is not what you will get actually buying the currency. I have seen 1.1355 today, which is less than last week. Bluntly buying euros is something you will need to do as and when you need to, and usually at the wrong time. It is part and parcel of going on holiday to Europe and one should just accept it. Enjoy the holiday and forget what it cost, or do not go. On the positive side if you pick where you go then you can live ore cheaply than at home and save that way.
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The £ and Euro has gained against the $US of late because of:-

 

http://www.reuters.com/article/2013/05/21/us-markets-forex-idUSBRE93E00320130521

 

Therefore - if I was planning a European holiday in the next few months I would be tempted to buy some $US now on the expectation that the US$ will rise against the Euro more than the £ will.

 

When the time comes the $US is likely to be sitting higher against the Euro and the £ such that a gain can be made.

 

No guarantees tho! 8-)

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Dave225 - 2013-07-17 7:43 PM

 

It has risen 1 cent on the official rate but of course that is not what you will get actually buying the currency. I have seen 1.1355 today, which is less than last week. Bluntly buying euros is something you will need to do as and when you need to, and usually at the wrong time. It is part and parcel of going on holiday to Europe and one should just accept it. Enjoy the holiday and forget what it cost, or do not go. On the positive side if you pick where you go then you can live ore cheaply than at home and save that way.

 

The rise you refer to was simply a recovery after a similar drop the previous day. The significant thing is the recent drop in value of the £ against the euro. When we went out to France and Spain last September, we were getting 1.26; when we returned in April we were getting 1.18; and today we would get less than 1.16.

 

I do agree with you, however, that buying euros in advance gets you an even worse rate. I have never seen the point of buying euros in advance; we simply get ours out of local ATM machines and consequently get the higher bank rate.

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John 47 - 2013-07-18 10:08 AM

 

Dave225 - 2013-07-17 7:43 PM

 

It has risen 1 cent on the official rate but of course that is not what you will get actually buying the currency. I have seen 1.1355 today, which is less than last week. Bluntly buying euros is something you will need to do as and when you need to, and usually at the wrong time. It is part and parcel of going on holiday to Europe and one should just accept it. Enjoy the holiday and forget what it cost, or do not go. On the positive side if you pick where you go then you can live ore cheaply than at home and save that way.

 

The rise you refer to was simply a recovery after a similar drop the previous day. The significant thing is the recent drop in value of the £ against the euro. When we went out to France and Spain last September, we were getting 1.26; when we returned in April we were getting 1.18; and today we would get less than 1.16.

 

I do agree with you, however, that buying euros in advance gets you an even worse rate. I have never seen the point of buying euros in advance; we simply get ours out of local ATM machines and consequently get the higher bank rate.

 

The drop you mention has been a long term thing and is related to the policy of QE. Print more money and it reduces in value, not rocket science, but it does make your debts smaller. So, although the euro is in bad shape, the pound is not a valuable item either. My actual point was that if you are planning a holiday you will try to pick the best time to get your euros, but if like me, you usually get it wrong. Plus if it varies from 1.18 to 1.13 or back, then at the end of the day it is not going to make you not go on holiday. You need to have them to buy things. Of course you can use a card and take the rate as it goes, maybe you win, maybe not. Again in the total price of the trip is it worth worrying about? If so, then do not go. This year for example the site I stay on gave me a discount of 1 euro per night. As I stayed 76 days that added up, and I was happy. If the euro rate changed to compensate then c'est la vie, I was still cheaper than the CC or C&CC by a big margin and that was my choice.

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Dave225 - 2013-07-18 8:51 PM

 

John 47 - 2013-07-18 10:08 AM

 

Dave225 - 2013-07-17 7:43 PM

 

It has risen 1 cent on the official rate but of course that is not what you will get actually buying the currency. I have seen 1.1355 today, which is less than last week. Bluntly buying euros is something you will need to do as and when you need to, and usually at the wrong time. It is part and parcel of going on holiday to Europe and one should just accept it. Enjoy the holiday and forget what it cost, or do not go. On the positive side if you pick where you go then you can live ore cheaply than at home and save that way.

 

The rise you refer to was simply a recovery after a similar drop the previous day. The significant thing is the recent drop in value of the £ against the euro. When we went out to France and Spain last September, we were getting 1.26; when we returned in April we were getting 1.18; and today we would get less than 1.16.

 

I do agree with you, however, that buying euros in advance gets you an even worse rate. I have never seen the point of buying euros in advance; we simply get ours out of local ATM machines and consequently get the higher bank rate.

 

The drop you mention has been a long term thing and is related to the policy of QE. Print more money and it reduces in value, not rocket science, but it does make your debts smaller. So, although the euro is in bad shape, the pound is not a valuable item either. My actual point was that if you are planning a holiday you will try to pick the best time to get your euros, but if like me, you usually get it wrong. Plus if it varies from 1.18 to 1.13 or back, then at the end of the day it is not going to make you not go on holiday. You need to have them to buy things. Of course you can use a card and take the rate as it goes, maybe you win, maybe not. Again in the total price of the trip is it worth worrying about? If so, then do not go. This year for example the site I stay on gave me a discount of 1 euro per night. As I stayed 76 days that added up, and I was happy. If the euro rate changed to compensate then c'est la vie, I was still cheaper than the CC or C&CC by a big margin and that was my choice.

 

I agree with a lot of that but the decline of the £ against the euro began long before QE. When the euro was first established, the £ was valued at over 1.70. It has declined to as low as (I think) 1.04 and recovered from that but the long term trend even before QE was downward. I remember reading that financial experts (whoever they might be!) reckon that the "natural" level for the £ would currently be between 1.20 and 1.25. I don't know who these financial experts are but they are clearly saying that the £ is not doing very well against the euro. Or to put it another way, investors favour the euro over the £, which is surprising if you believe those who say that our economy is supposed to be stronger than the euro zone. The only conclusion I can draw is that our economy isn't as strong as some would like us to believe when compared to the euro zone.

 

 

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