The British Pound sunk to a three-month low against the Dollar whilst UK stocks rallied.
The reason? The Bank of England warned investors that interest rates will not rise any time soon. They gave this statement when they announced that they will keep the main financing (also known as the benchmark interest rate) rate at 0.5% and also were to keep their QE programme unchanged.
Interest rates are monitored by investors and managed by the Bank of England, and this is done in two ways (however, in this case the UK have carried out both activities) QE is when the Bank of England ‘prints’ money and purchases bonds and other debt securities. This increases the supply of money into an economy and will reduce interest rates as per the standard supply and demand mechanism.
Bonds are purchased from banks and other lending institutions to lend out to their customers in order to boost demand for services products. However, the main risk here is that banks may not be confident enough to lend to their customers and instead may use it for other things like paying down debt.
Todd Gilbey | gilbey.todd@googlemail.com
Todd Gilbey 