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Sterling stays low despite Bank of England's bond boost

London

STERLING briefly pared losses against the US dollar and euro on Thursday, but remained firmly in negative territory despite the Bank of England (BoE) increasing its bond-buying by £100 billion (S$174 billion) to bolster the coronavirus-hit economy.

The central bank, which also kept its benchmark interest rate at 0.1 per cent, said it expects a new total of £745 billion in government bond purchases to be hit by the end of the year.

Prior to the decision, sterling was trading as much as 0.5 per cent lower against both the US dollar and the euro.

It jumped against both after the central bank's decision but soon slid back towards the day's lows.

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By 7.34pm Thursday, Singapore time, the pound was 0.4 per cent down against the US dollar at US$1.2508 and 0.4 per cent down against the euro at 89.85 pence.

"It was on the hawkish end of the spectrum for what the BoE could have done today. The pace at which the BoE's asset purchases will take place over the coming months will materially slow - meaning that there will be less marginal quantitative easing support," said Viraj Patel, FX and global macro strategist at Arkera.

"That explains the headline-driven increase in the pound - although overall, given that the bank can scale-up purchases as and when they like, it's not something to get carried away with."

While most economists polled by Reuters expected an expansion of £100 billion, some analysts expected more.

ING Bank and Nomura, for instance, expected an increase of £150 billion.

"Uncertainty around a UK-EU trade deal should prevent markets from pricing out the possibility of negative rates in the UK," ING strategists said in a daily note.

"We expect little progress in UK-EU trade negotiations in the weeks to come, suggesting further downside to the pound and the currency to be one of the underperformers in the G10 FX space." REUTERS

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