The British pound licked its wounds on Friday, a day after the Bank of England not only cut interest rates but also restarted its bond purchase programme to shore up the economy, while the dollar held firm ahead of the United States employment data.
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This makes it very likely that further cuts to the policy rate and expansions of the BOE’s other easing measures will be forthcoming over the coming months, providing further downside risks to the pound provided USA economic activity does not begin to steadily weaken.
The bank furthermore said it will buy up to 10 billion pounds of corporate bonds to make it easier for companies to borrow, and announced a program of cheap loans for banks to make sure they can lend to people and businesses at low rates. The stock rose 88 cents, or 8.4 percent, to $11.32.
But Japan’s Nikkei surrendered its earlier gains to close flat. Britain’s central bank hadn’t cut interest rates since the financial crisis.
The bank said it would pump £70 billion ($92 billion) into the economy by printing money to buy bonds issued by the British government and about 150 companies.
A strong reading there could help the dollar by reviving expectations that the Federal Reserve could raise interest rates later in the year, a scenario that had been completely discarded in the days that followed the shocks from Brexit vote.
The move pushed yields on 10-year United Kingdom government bonds, or Gilts, to a record low of 0.639%.
Further policy loosening in the United Kingdom helped push European shares up 0.6 per cent, while the dollar rose 0.2 per cent against a currency basket, drawing strength from a stronger-than-expected ADP jobs number on Wednesday.
British government bond yields also inched off record lows, and German yields rose after a 5 basis-point tumble following the BOE move. IG reports that economists expect the U.S. to have added 175,000 jobs last month, while the unemployment rate is forecast to have remained steady at 4.9 percent.
With the BoE decision now out of the way, the market’s focus is shifting to the U.S.jobs report due at 1230 GMT.
Spot gold was up 0.3 per cent at $US1,361.14 an ounce by 3:00 p.m. EDT (0500 AEST), off an earlier low of $US1,348.50, while USA gold futures for December delivery settled up 0.2 per cent at $US1,367.40.
Seven of the 10 major S&P 500 sectors were higher, led by a 0.52pc gain in the information technology index.
Britain’s FTSE 100 rose 1.6 percent.
SINGAPORE/TOKYO – A rebound in oil prices from four-month lows lifted Asian stocks. China’s CSI 300 index gained 0.2 per cent, and the Shanghai Composite advanced 0.1 per cent. The MPC said the costs of trying to bring it back to its 2 percent target in the immediate future would exceed the benefit. It’s on track for a 0.1 percent decline for the week.
The bank forecast that Britain would avoid recession but Carney warned of a significant slowdown, unemployment rising to 5.5 percent from 5 percent and falling house prices over the next year. All of the measures have scope for further action, including another cut to interest rates “close to, but a little above, zero” if incoming economic data proves broadly consistent with the Bank of England’s new forecasts.
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The Aussie climbed 0.4 percent to $0.7659, and Australian shares .AXJO also closed up 0.4 percent.
