British Pound Rally Continues Following Comments from BOE’s Fisher Signaling End of QE

The British pound continued its rally and finished Friday as the strongest of the majors as traders anticipate that the Bank of England (BOE) will close down their quantitative easing (QE) program by the end of the year. However, the GBPUSD pair closed right near key resistance formed by the 100 SMA and a falling trendline drawn from the August high near 1.6350/1.6400, and this could prevent further rallies at the start of next week. On Thursday, the Financial Times published an interview with BOE Monetary Policy Committee (MPC) member Paul Fisher, and in it, he said that he feels “much more confident now that the asset purchase program is having the scale and speed of impact that we would have hoped for when we started," suggesting that the central bank may not need to continue with the program when it expires as planned toward the end of the year.

Next week’s event risk could go a long way to add to this speculation, or refute it completely. On Wednesday, the minutes from the BOE’s October meeting will be released and there are a variety of potential comments that could impact the British pound. First, the vote count is likely to show the Monetary Policy Committee (MPC) members were unanimously in favor of neutral policy for both the Bank Rate and the Asset Purchase Facility (APF), but any dovish deviation in this would trigger an immediate pullback in the British pound. The other possible trigger pertains to outlooks for growth and inflation, particularly upgrades or downgrades from previous forecasts, as this would lead traders to shift their expectations for interest rate decisions in 2010, with Credit Suisse overnight index swaps currently pricing in 86 basis points worth of rate hikes by the BOE over the next 12 months.