Pound Continues to Fall After Bank of England Rate Decision

The pound has prolonged its fall against major currencies, following the decision by the Bank of England to cut interest rates by 25 basis points to a historic low of 0.25% in what was a unanimous decision by the bank’s Monetary Policy Committee, who also hinted that there maybe further rate cuts and more stimulus to come.

So far this morning GMT, the GBP/USD rate is $1.31, the pound plummeted as soon as the Bank of England made the decision, with sterling falling from a then perch of $1.334,against the euro, the pound also precipitated once the Bank of England announcements were made, falling from 1.198 euros down to 1.178 euros.

In their daily report LMAX Exchange said that the Bank of England decision could set the tone for upcoming moves by the European Central Bank(ECB), suggesting a path that leans more to the accommodative side, so the ECB can keep level with the Bank of England moves to mitigate the  Brexit contagion risk.

The markets have reacted more cautiously to sterling, especially to the announcement of an extra £60 billion of quantitative easing, and £10 billion more on corporate bonds, increasing the money supply forcing downward pressure on the pound.

Fitch Ratings have warned that the action taken by the Bank of England will only cushion and not offset the effect of ‘Brexit’, even though the measures taken will forestall credit tightening, but they will not outweigh the impact on investment.

As firms reduce capital spending due to the sharply heightened uncertainty over the UK’s future, especially international trading arrangements over access to the single market in Europe and internationally, there are also a lack of confidence from the rating agency over current political and regulatory operations.

Fitch expect the referendum will take a significant toll on the economy, despite sterling’s fall in potentially supporting export sales, their latest growth forecasts are 1.7% in 2016, which is down from 1.9% in May, and 0.9% in 2017 and 2018, a reduction from 2%.

Also, the corporate bond purchase scheme may boost investor appetite for higher-yielding securities, but UK corporates have little need to raise significant new debt, overall  lower funding costs will be less of a factor for corporate credit profiles, than weak growth and sterling depreciation.

German Manufacturing Orders Decrease in June

 The German Federal Statistical Office has revealed that orders in the crucial manufacturing sector had decreased in June by 0.4% in comparison with the previous month, more positively the sector without major orders had increased in June  by 0.9% from May.

Overall, the latest figures also contrasted unfavourably with the data for the sector in May, as there was a month on month increase of 0.1%.

In June domestic orders increased by 0.7%, while foreign orders decreased by 1.2% on the previous month, new orders from the euro area were down 8.5% compared to May, while business from other countries increased by 3.8% in June month on month.

Manufacturers of intermediate goods recorded decreases in new orders of 0.7%, while  capital goods showed a decrease of 0.2% on the previous month, the downfalls were replicated by consumer goods, which also fell by 0.7%.