Investors are counting on the Bank of England to cut interest rates to a record low 0.25 percent later on Thursday to support an economy that has slumped since the Brexit vote. On Thursday the BoE cut interest rates to record low 0.25 percent and expanded its quantitative easing programme by 60 billion pounds ($79 billion).
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Business chiefs in Lancashire have welcomed the Bank of England’s move to slash interest rates for the first time in more than seven years and deliver an emergency package worth up to £170 billion to ward off recession. A strong reading there could help the dollar by reviving expectations that the Federal Reserve could raise interest rates by year-end, a scenario that had been discarded in the days that followed the shocks from June’s Brexit vote. This will lend directly to banks at rates close to the new 0.25% base rate to encourage them to pass on the lower interest rates to businesses and households.
The moves look to inject confidence into the national economy after the country voted in a referendum to leave the European Union.
Mr Carney added: “By acting early and comprehensively, the MPC can reduce uncertainty, bolster confidence, blunt the slowdown, and support the necessary adjustments in the United Kingdom economy”.
“Over to you, Mr. Hammond”, she said.
Analysts say that a better-than-expected US nonfarm payrolls report would give the dollar traction against the resurgent Japanese yen, which firmed after the Bank of Japan’s modest monetary easing last week disappointed investors expecting more drastic stimulus steps.
Most economists were expecting a rate cut, but some had expected the central bank to hold off any further action until the government unveils new tax and spending plans in the fall. The Labor Department said Thursday applications for unemployment aid rose to 269,000 last week, a level close to historical lows and a positive sign for the job market.
The minutes also showed the policymakers were not unanimous on the whole package.
Aussie continued to rally as market players are expecting for a stronger currency yield following the UK’s rate cut. The additional QE was backed by six committee members but opposed by Kristin Forbes, Ian McCafferty and Martin Weale.
Forbes also opposed the purchases of corporate debt – something the BoE did briefly after the financial crisis, but more to aid market functioning than to boost growth. It also predicts inflation will rise past the 2 percent target within three years to around 2.4 percent in 2018 as the weaker pound makes it more expensive to import goods and services.
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Japan’s Nikkei .N225 advanced 0.3 percent, on track for a loss of 1.6 percent for the week. “The bigger picture is that wage growth will likely remain too week to create major cost pressures”, said Marcel Thieliant of Capital Economics in a report. Ball Corp., which makes metal and plastic packaging for food and drink companies, jumped $7.91, or 11.3 percent, to $78.01 after its quarterly profit was larger than expected. It is a stark contrast to expectations before the vote to leave the European Union, when the next move in interest rates was seen as likely to be upwards.
