British Pound Sterling | Currency News Views and Outlook

Currency: GBP takes cue from appreciation in risk-desire, Posen gives no hints on QE, GBP funding currency status entrenched

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Category: British Pound Sterling

Published on Monday, 20 February 2012 10:05

Written by Sam Coventry

The British pound (Currency:GBP) is taking its cue from stronger global commodity and equity markets; stronger markets usually open the door to GBP/USD strength and GBP/EUR weakness.

The pound to euro exchange rate (GBP/EUR) is 0.41% lower at 1.1992 while the pound to US dollar exchange rate (GBP/USD) is 0.22% higher at 1.5862.

Bank of England MPC member Posen offered his interpretation of the latest quarterly inflation report in a speech on Friday.

UBS exchange rate analyst Geoffrey Yu comments:

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"He would not be drawn on whether yet another round of QE was being considered. However he said that the inflation forecast, which assumes the QE target remains unchanged in future ‘gets us close to target with the risks pretty balanced’. We note that his comments suggest some satisfaction with current policy settings – an unusual state of affairs for Posen who has been the most dovish member of the MPC for over a year."

On Friday our sister publication Euro Exchange Rate News published some Bank of America insight into the status of the UK currency as a funding currency.

Looking at the US stance on quantitative easing, while dovish Fed officials have been vocal about the likelihood of further monetary easing, US economic releases continue to surprise on the upside.

With several other major central banks easing policy this year, dovish Fed officials could always explore opportunities elsewhere if they find themselves thwarted by the economic resilience at home.

"Frustrated Fed doves, active easing in Europe and Japan, and the Eurozone crisis all suggest the dollar will be the strongest major currency in 2012," says Yu.