British pound retreats further in Asia trading hours after BOE rate cut, renewed quantitive easing

PUBLISHED : Friday, 05 August, 2016, 11:46am
UPDATED : Friday, 05 August, 2016, 11:46am

The British pound was down sharply on Friday, slumping to its lowest level in a month after the Bank of England announced a fresh round of stimulus measures intended to mitigate the effect of the UK’s decision to leave the European Union.

The pound is quoted at 1.3128 against the US dollar as of 10.30am Hong Kong time, extending a loss of 1.56 per cent to 1.3120 against the US dollar on Thursday, which is the sharpest decline since July 5, following the UK vote to exit the EU.

On Thursday the Bank of England slashed its main lending rate by a quarter-point to 0.25 per cent and announced a renewed quantitative easing programme through the planned purchase of an additional 60 billion pounds of government debt. The rate cut was the first since 2009 and represents a package of measures designed to cushion the economic fallout from Britain’s vote to leave the European Union on June 23.

As part of the stimulus package, the BOE will launch a 10-billion-pound corporate debt buying initiative and a programme worth up to 100 billion pounds to ensure the rate cut makes it through to borrowers.

“The BOE’s asset purchase programme will take six months to complete and the corporate bond purchase programme is intended to be completed over an 18-month period. This suggests monetary policy will remain highly accommodative for much of the cyclical horizon,” PIMCO’s head of Sterling Portfolios Mike Amey said in a note.

Despite the extra stimulus from the BOE, IG market analyst Angus Nicholson said the outlook for the UK economy remains weak, providing further downside risks to the pound.

“BOE governor Mark Carney’s assessment of the post-Brexit UK economy was very negative, predicting the unemployment rate will rise from 4.9 per cent to 5.5 per cent over the next two years despite the new stimulus,” he wrote in his morning note.

The Chinese yuan retreated on Friday, with onshore yuan in Shanghai quoted at 6.6457 against the US dollar as of 10.30am and offshore yuan in Hong Kong traded at 6.6511 against the greenback.

The People’s Bank of China on Friday sets the yuan reference rate to the US dollar at 6.6406, 38 basis points stronger than the previous day. Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

Meanwhile, the PBOC sets the reference rate of the yuan against the pound at 8.7147, stronger by 1,391 basis points. Against the euro the daily fix was set at 7.3921, stronger by 83 basis points, and against 100 yen the daily fix was set at 6.56 against, weaker by 7 basis points.