The British pound is higher against the euro on Thursday on a busy day of central bank action for both currencies after both the European Central Bank and the Bank of England increased government bond purchases, with UK interest rates cut to a record low of 0.1%.
Pound versus euro was up by 264 pips (+2.84%) to 1.0901 with a daily range of 1.0524 to 1.0962 as of 4pm GMT. GBP/EUR has managed to reverse almost all the huge losses felt on Wednesday less than 24 hours later with a massive gain of over 400 pips from yesterday’s low. Weekly losses have now been cut to -1.09%.
BOE cuts rates to near zero and restarts QE
New BOE Governor Andrew Bailey has started with a bang. The Bank of England has slashed interest rates again to a new record low of 0.1%.
The Monetary Policy Committee (MPC) has additionally voted to restart a program of purchasing of UK government bonds known as quantitative easing (QE).
QE involves the printing of new money to buy government bonds, which devalues the exiting money in circulation. The pound is still significantly up on the day against the euro because the QE program is smaller than the one just announced in the Eurozone. £200 billion vs. €750 billion!
Euro slides as ECB starts massive new QE program
The European Central Bank (ECB) took markets by surprise in the early hours of Thursday with a new quantitative easing program worth 750 billion euro. They have named the bond-buying program the Pandemic Emergency Purchase Program (PEPP).
The stepped up response from central bankers came as German Chancellor Angela Merkel called the pandemic the worst thing for Germany since World War 2. The central bank had already been forced to intervene in markets when the yield on Italian debt spiked with the spread between Italian and German bond yields at the highest since the Eurozone debt crisis.
New ECB President Lagarde is saying there are “No limits” to her commitment to the euro. But these are different times to when her predecessor Mario Draghi said he would do “whatever it takes”.