British Pound Currency Profile (Part II)
Despite the independence of the Bank of England (BOE), its monetary policy is dictated by the inflation target set by the Treasury Chancellor. BOE has the power to change interest rates to levels that it believes will allow it to meet this target.
The Monetary Policy Committee (MPC) meetings are closely followed by the professional forex traders all over the world as GBP is a highly popular currency among the traders. MPC meetings are held on a monthly basis and are closely followed by changes in the monetary policy including changes in the interest rates.
Now closely following what happens before and after these meeting is the job of many professional forex traders who trade GBP heavily. They cant risk the chance of being taken by sudden surprises. Before each meeting, the market guesses the likely outcome. After each MPC meeting, MPC issues statements. These statements are compared with the expectations the market had. Any deviation is the cause of major volatility in the pairs involving GBP. These statements are very important for GBP traders. A Quarterly Inflation Report detailing the MPCs forecasts for the next two years of growth and inflation and its justification for its policy movements is also published.
The Quarterly Bulletin is another publication. It provides information for the past monetary policy movements and analysis of international economic scene and its impact on the British economy. All of these reports are highly informative for professional forex traders who trade GBP heavily.
The main policy tools used by MPC and BOE are the Bank Repo Rate and the Open Market Operations. Bank repo rate is the key rate used in the monetary policy to achieve the Treasurys target inflation rate.
Bank repo rate is the short term interest rate that eventually sets in motions changes in the other short term and long term interest rates in the market. However, there is always a time lag between the policy announcement and the anticipated change in the market interest rates. It maybe a few months to a year! Changes to the bank repo rate affect the commercial banks interest rates for its savers and borrowers. Bank repo rate is set by the BOE for its own operations in the market such as the short term lending activities.
When the economy is overheating, the central bank tries to cool it down by increasing the interest rte. An increase in the Bank Repo Rate means BOE wants to curb the inflation. A When the economy slumps into a recession just like what has happened currently, the central banks will try to lower interest rates to promote more economic activity so that the economy starts expanding again. Decrease in the interest rate would be to stimulate growth and expansion. Changes in the bank repo rate changes the commercial interest rates. In turn these commercial interest rates will affect spending and output in the economy and eventually the costs and prices.
While assuring adequate liquidity in the market and continued stability in the banking system, the goal of the open market operations is to implement the changes in the bank repo rate.
The present financial crisis has been very severe. It started in the US sub-prime markets but eventually UK economy also suffered tremendously from it. Many UK banks had heavily invested in the US mortgage securities. Now it just shows how the individual economies are interlinked in this global economy now. Both the bank repo rate and the open market operations are used by the BOE to achieve its broad monetary policy objective. The three main objective of the BOE are to maintain the stability of the financial system, maintain the integrity and value of GBP and seeking to ensure the effectiveness of the UK financial services. These objectives are very important for the BOE to maintain in the present global financial crisis.
These monetary policy objectives are met primarily through the open market operations. In order to ensure liquidity in the economy, BOE daily conducts open market operations to buy or sell short term fixed income government instruments. BOE can conduct additional overnight operations as well if this is not sufficient to meet the liquidity needs. The United Kingdom is a pivotal nation because it bridges the economical, geographical, and ideological divide between the United States and Europe.
Because the United Kingdom is an oil producer, the GBP can be affected more directly by oil prices than other currencies. The relationship between oil and the pound is fading, however, because production in the United Kingdoms North Sea oil fields is steadily decreasing. - 23196
The Monetary Policy Committee (MPC) meetings are closely followed by the professional forex traders all over the world as GBP is a highly popular currency among the traders. MPC meetings are held on a monthly basis and are closely followed by changes in the monetary policy including changes in the interest rates.
Now closely following what happens before and after these meeting is the job of many professional forex traders who trade GBP heavily. They cant risk the chance of being taken by sudden surprises. Before each meeting, the market guesses the likely outcome. After each MPC meeting, MPC issues statements. These statements are compared with the expectations the market had. Any deviation is the cause of major volatility in the pairs involving GBP. These statements are very important for GBP traders. A Quarterly Inflation Report detailing the MPCs forecasts for the next two years of growth and inflation and its justification for its policy movements is also published.
The Quarterly Bulletin is another publication. It provides information for the past monetary policy movements and analysis of international economic scene and its impact on the British economy. All of these reports are highly informative for professional forex traders who trade GBP heavily.
The main policy tools used by MPC and BOE are the Bank Repo Rate and the Open Market Operations. Bank repo rate is the key rate used in the monetary policy to achieve the Treasurys target inflation rate.
Bank repo rate is the short term interest rate that eventually sets in motions changes in the other short term and long term interest rates in the market. However, there is always a time lag between the policy announcement and the anticipated change in the market interest rates. It maybe a few months to a year! Changes to the bank repo rate affect the commercial banks interest rates for its savers and borrowers. Bank repo rate is set by the BOE for its own operations in the market such as the short term lending activities.
When the economy is overheating, the central bank tries to cool it down by increasing the interest rte. An increase in the Bank Repo Rate means BOE wants to curb the inflation. A When the economy slumps into a recession just like what has happened currently, the central banks will try to lower interest rates to promote more economic activity so that the economy starts expanding again. Decrease in the interest rate would be to stimulate growth and expansion. Changes in the bank repo rate changes the commercial interest rates. In turn these commercial interest rates will affect spending and output in the economy and eventually the costs and prices.
While assuring adequate liquidity in the market and continued stability in the banking system, the goal of the open market operations is to implement the changes in the bank repo rate.
The present financial crisis has been very severe. It started in the US sub-prime markets but eventually UK economy also suffered tremendously from it. Many UK banks had heavily invested in the US mortgage securities. Now it just shows how the individual economies are interlinked in this global economy now. Both the bank repo rate and the open market operations are used by the BOE to achieve its broad monetary policy objective. The three main objective of the BOE are to maintain the stability of the financial system, maintain the integrity and value of GBP and seeking to ensure the effectiveness of the UK financial services. These objectives are very important for the BOE to maintain in the present global financial crisis.
These monetary policy objectives are met primarily through the open market operations. In order to ensure liquidity in the economy, BOE daily conducts open market operations to buy or sell short term fixed income government instruments. BOE can conduct additional overnight operations as well if this is not sufficient to meet the liquidity needs. The United Kingdom is a pivotal nation because it bridges the economical, geographical, and ideological divide between the United States and Europe.
Because the United Kingdom is an oil producer, the GBP can be affected more directly by oil prices than other currencies. The relationship between oil and the pound is fading, however, because production in the United Kingdoms North Sea oil fields is steadily decreasing. - 23196
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try 1500 Pips a day Forex Signals. Discover a revolutionary Forex Robot Trading System!
posted by X - Men @ 9:01 AM
0 Comments
