- The euro accelerates its bullish trend after the Baile and Bae Baile testimony about the financial stability report.
- Bailey warned that the most pronounced performance curve reflects commercial uncertainty, but assured that this is a global trend.
- The euro can be seen on all fronts after the publication of the BCE loan survey.
The euro extends its profits for the third consecutive day in front of a weaker sterling, and approaches the maximums intradic in 0.8780 after the BaE’s testimony of the BOE on the financial stability report. From a broader perspective, the pair remains in the way to the negotiation range last week.
The governor of the BOE, Andrew Bailey, observed the most pronounced performance curves in the United Kingdom bonds, but said that this is a global phenomenon, which reflects the greatest uncertainty about commercial policy, and that the experience of the United Kingdom on yields is not out of line with other markets.
The sterling pound has gathered in front of its main peers after the comments of Bailey, also in front of a more strong general euro, which is receiving support from a weaker US dollar and a survey of loans from the ECB quite optimistic published earlier in the day.
The ECB survey indicates that credit conditions have not suffered any significant impact due to commercial uncertainty, and the demand for mortgage and corporate credit increased in the second quarter and is expected to grow even more in the next quarter.
These figures reinforce the case to maintain stable interest rates after the monetary policy meeting on Thursday and have given some support to the euro, which is the best performance between the G8 currencies on Tuesday.
BOE – Frequently Questions
The Bank of England (BOE) decides the monetary policy of the United Kingdom. Its main objective is to achieve prices stability, that is, a constant inflation rate of 2%. Your instrument to achieve this is the adjustment of basic loan rates. The BOE sets the type to which it provides commercial banks and to which banks lend themselves to each other, determining the level of interest rates in the economy in general. This also influences the value of sterling pound (GBP).
When inflation exceeds the objective of the Bank of England, it responds by raising interest rates, which makes access to credit for citizens and companies more expensive. This is positive for sterling pound, since higher interest rates make the United Kingdom a more attractive place for world investors to invest their money. When inflation falls below the objective, it is a sign that economic growth is slowing down, and the Bank of England will consider the possibility of lowering interest rates to reduce credit in the hope that companies ask to borrow to invest in projects that generate growth, which is negative for sterling pound.
In extreme situations, the Bank of England can apply a policy called Quantitative Easing (QE). The QE is the process by which the BOE substantially increases the flow of credit in a stuck financial system. The QE is a policy of last resort when the descent of interest rates does not achieve the necessary result. The QE process implies that the Bank of England prints money to buy assets, normally state bonds or corporate bonds with AAA rating, banks and other financial institutions. Which usually translates into a weakening of the pound sterling.
The quantitative hardening (QT) is the reverse of the QE, and is applied when the economy is strengthening and inflation begins to rise. While in the QE the Bank of England (BOE) buys state and business bonds from financial institutions to encourage them to grant loans, in the QT the BOE stops buying more bonds and stops reinvesting the main one that expires of the bonds it already has. It is usually positive for sterling pound.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
