Don’t believe the hype – Public Enemy

All in all the Bank of England decision to raise quantitative easing by an additional £25bn turned out to be a bit of a non-event in sterling terms. £50bn would have seen sterling retreat, nothing would have seen it jump higher so it naturally follows that a £25bn expansion is the most sterling neutral of decision.

One analyst described it as ‘one last heave’ we however believe it’s a gamble on an upwards revaluation of the preliminary GDP figure. Should the recovery continue to stall and the High St has an awful Christmas this bet may not come off.

Sterling hit highs of 1.6620 against the USD and 1.1190 against the euro yesterday. Barring any fun and games with today’s non-farm release or stumble in equity markets we believe that sterling should operate in a range of 1.62 – 1.6740 against the USD and 1.10 -1.1250 against the euro for the next week.

There was more data than just the MPC decision which helped GBP upwards yesterday: industrial and manufacturing production were both higher, validating Monday’s strong PMI release, whilst EU retail sales were poor.

Data is dominated by the Non-Farm Payrolls announcement from the US today. Should we see a better figure than consensus (-175k) we would expect USD to strengthen against its crosses and  retreat should the figure come out worse.

Have a great weekend.

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