Representatives of the Monetary Policy Committee of the Bank of England voted unanimously and following market forecasts for maintaining interest rates and the QE programme at the same level. Thus, the main interest rate is still at 0.1 percent.
The Committee unanimously supported the continuation by the Bank of England of its existing programs for the purchase of British government bonds and corporate bonds, which are financed from the creation of new reserves of the central bank. The total purchase amount is still £745 billion. The Committee does not intend to tighten monetary policy until there is clear evidence that inflation will systematically return to the 2% target. The Bank of England does not expect a rapid return of GDP to the level of the fourth quarter of 2019. This is only expected to happen after 2021.
However, the British currency has reacted with a strengthening, with the GBP/USD exchange rate rising to its highest level since early March, approaching 1.3200. However, the exchange rate is also potentially affected by what is happening with the US dollar in the broad market. The dollar index fell to its lowest level in two years, reaching 92.49 points. Investors expect US legislators to reach an agreement on the next coronavirus-related aid package and expect the Federal Reserve to further tighten monetary policy this year. The US government is expected to present a new stimulus plan by the end of the week after two weeks of negotiations. Nevertheless, politicians were still divided between Congress and the White House on key elements of the bill. The dollar could also be affected by concerns about the introduction of a lockdown in some states after the rise in infection cases.
Investors' attention is also drawn to what is happening on the commodities market, especially gold and silver. In July, the price of silver rose by 34 percent. This was the largest monthly increase since December 1979. The rise in metal prices seems to be supported by the weakness of the dollar, political tensions between the US and China, negative real interest rates, and the acceleration of the pandemic.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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