Sterling under selling pressure as the market prices in an increase to QE

Sterling slipped yesterday, snapping a 5-day consecutive climb against the euro as traders braced for the possibility that the BoE may announce an extension to quantitative easing.

  • The pound was broadly sold in trading throughout the day in spite of data showing that recovery in Britain’s manufacturing sector was accelerating.
  • The Chartered Institute of Purchasing and Supply said its composite index of manufacturing activity rose to 53.7 in October, following two-consecutive months of declines
  • Investors appeared unconvinced, however. Improvements in purchasing managers’ indices between March and July had prompted many to think the UK economy would have returned to growth in the third quarter, only to be disappointed by last month’s negative GDP reading.
  • The markets were particularly bearish towards sterling as they speculated that the BoE will announce a continuation of their asset purchasing scheme at their meeting later this week, which enabled the single currency to gain.
  • Sterling was also under pressure from the looming announcement of a banking sector shake-up as the government finalises plans to carve up rescued banks RBS and Lloyds.