BoE Pauses QE efforts, Sees Inflation Falling Back Below Target

Fundamental Headlines

• Tech Spending Bounces Back – Wall Street Journal
• Greece, Portugal Woes Intensify – Wall Street Journal
• Sovereign debt fears rattle investors - Financial Times
• Bank of England to Pause Bond-Purchase Plan, Keeps Open Option to Buy More – Bloomberg
• Portugal, Spain Lead Worldwide Decline in Stocks; Bonds Drop, Dollar Gains- Bloomberg


GBP/USD –  The BoE left their benchmark rate at 0.50% and paused their asset purchase program at 200 billion pounds which was expected. There was some speculation that the central bank would add to their QE efforts after December’s disappointing mortgage approvals. The MPC sees the potential for inflation to continue rising, but will eventually fall below their 2% target for a period. This will allow policy makers to remain aggressive with stimulus efforts and will consider further asset purchases if needed. However, the BoE expects stock purchases to this point “will impart stimulus for some time”.  Additionally, a lower sterling and recovering export markets are supporting the economy. Policy makers still believe that a gradual recovery is likely leading to rates remaining on hold .  To discuss this and other topics, please visit the GBP/USD Forum.

EUR/USD –  The ECB left their benchmark rate on hold at 1.00% as the central bank continue to see risks balanced. An unexpected decline in German factory orders by 2.3% in December against forecasts of 0.2%, supports the central bank claims of existing downside risks to growth. A 0.4% rise in chemical output was the only positive sector as metal production, electronics, engineering, and auto parts saw significant declines. A slowdown in output for Europe’s largest economy puts added pressure on the economic region which is dealing with the budget deficit troubles of Greece and Portugal. To discuss this and other topics, please visit the EUR/USD Forum.