Pound falls further as UK bond return goes negative

11 August, 2016

Robin Haynes

The Pound fell a further cent against both the Euro and US Dollar in trading yesterday, as the Bank of England failed to push as much money as proposed into the economy, in the first bond-buying auction of its newly-extended QE programme.

The return on some Gilts, as government bonds are known, fell below zero to -0.1%, as pension funds and other investors declined to take up the offer of new money from the Bank of England.

Sterling had been falling through morning trading anyway, dropping to its lowest since the Brexit referendum against the Euro by around 3pm, and only just off post-Brexit lows against the US Dollar.

Elsewhere, the New Zealand Dollar strengthened dramatically at 10pm as the Reserve Bank of New Zealand cut interest rates from 2.25% to 2%, but many traders had expected a bigger cut. The NZD suddenly jumped over 1% in value, but dropped back through the rest of the night’s Asian trading.
With no recovery for the Pound in sight, and the Quantitative Easing programme already in trouble only 2 days into its 6 month duration, it seems that there could well be more room yet for downward movement for exchange rates.

Quiet day ahead
With a lack of important economic data due out today in the UK or Europe, and only US import/export prices in the States, there is very little in the pipeline that is likely to give the Pound any further support today. Tomorrow the focus is on Europe, with Eurozone GDP, and the USA, with retail sales. Meanwhile, as Team GB starts to collect more gold medals, the Pound is only in contention for the wooden spoon award on the currency markets.