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Buying GBP/USD as BOE Looks to Reduce QE

Posted Monday, September 13, 2021 by
Skerdian Meta • 2 min read

Will GBP/USD bounce off the MAs soon?

During the pandemic period, the Bank of England (BOE) has been extremely dovish, like all central banks. With its QE (quatitative easing) program, it cut interest rates and threw extensive amounts of cash into the economy during the coronavirus crisis.

But, after the other central banks, like the FED, started reducing QE, and with the ECB also looking to wind down some of the cash programs, the BOE is following in their footsteps. It seems like they know that there won’t be many restrictions in the coming winter, which would send the economy into another recession. But, they’re looking to reduce the cash handouts, so the UK is unlikely to see further lockdowns.

GBP/USD Live Chart

GBP/USD

Remarks by BOE executive director for markets, Andrew Hauser

Unwinding QE will become an integral part of future tightening strategies
Balance sheet will be structurally larger in the future, even after QE unwinds

I don’t think anyone expects differently, especially on the part of larger balance sheets in the post-pandemic era. This has been the case after every major crisis. Hauser also made some interesting remarks on market dependency on central banks, and how that has had an adverse impact on functioning, as opposed to a market-led approach, which they are trying to work towards.

As much as that sounds self-righteous, central bankers got themselves into this mess, and to expect the market not to pick up on that and go with the flow is asinine. To make his point, Hauser says that any future accommodative policy is likely to make it clear that central banks are not going to respond as aggressively to a dysfunction that is unrelated to a global pandemic, and that the market should expect it.

Well, we’ll see if he has the same kind of resolve and guts to actually do so when the market is kicking and screaming. It’s not just about talking the talk, one has to walk the walk too. Meanwhile, the German Minister of Economic Affairs is also sounding optimistic, expecting higher GDP figures for this year.

Remarks by the German Ministry of Economic Affairs

Q3 GDP growth to pick up significantly after 1.6% q/q growth in Q2
GDP growth likely to normalise in Q4

Peak conditions in the early stages of the summer set up a good look for Q3 performance, but the latter stages are pointing to moderation in overall conditions, even more so in the outlook, as optimism fades and pent-up demand abates.

While a return to renewed virus restrictions may not be on the cards, there are still worries on the spread of the delta variant, which is keeping a cloud over the outlook in Q4.

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