The latest Bank of England minutes have played an instrumental role in the decline of the major currency of UK, Pound to a 15-month low value, against the Euro. Some of the officials of Bank of England supported the policy of extending asset purchase at 7th February’s meeting. Incidentally, such a policy is expected to debase Sterling and cause decline. The Government bonds of UK have also decreased.
Apart from the asset purchase policy, the officials are also interested in an interest rate cut. Mervyn King, the current Governor of Bank of England, along with David Miles and Paul Fisher supported an attempt to increase bond purchase target to 400 billion Pounds, however, 6 of the other members voted against them.
According to Gavin Friend, who works as the Foreign Exchange Strategist of National Australia Bank, Sterling is definitely not supported by such policy decisions or arguments. As Fisher and King are now in agreement with Miles for further quantitative easing, the investors have lost their confidence on Sterling.
Today, Sterling has declined by 0.5% against Euro and is currently priced at 87.26 pence per Euro. At one point of time on today, it reached 87.65 pence per Euro, marking its lowest value since October, 2011. Against USD, it is currently priced at $1.5291, experiencing a slide of 0.9%. Incidentally, it is at the lowest value against USD since 1st June.
This is the 4th time ever when King has been outvoted by other members, after becoming the Governor. Incidentally, in June, Mark Carney, the current Governor of Bank of Canada will be replacing King as he will retire from his position.
In 2013, Sterling has declined by 5.4% so far and is the 2nd worst performing major currency, just behind Yen. The 10-year British gilt yield has increased by 2 basis points and is currently at 2.20%. On the other hand, the 1.75% bond which is due by September, 2022 experienced a decline of 0.15 and is at 96.15 now.
The benchmark interest rate is already at a record low value of 0.5% and according to the minutes, policy makers thought of lowering the same further. They also have plans of changing the remuneration on bank reserves and buying assets different from the gilts. These options were discussed earlier also, however, the associated drawbacks refrained the policy makers from implementation.