Sterling slides against euro ahead of MPC meeting

The pound declined for the sixth day in a row against the euro today, as speculation mounts that the Bank of England is more likely to indicate an inclination toward further stimulus than the European Central Bank.

EUR/GBP had risen 0.64% to 0.8701 by mid-afternoon in New York and with just two days left in July, the pound is on course for the fourth month in a row of declines against the euro, having lost 1.6% so far this month.

Although Mario Draghi and other European policy makers have said that further tools remain on the shelf should they be needed to provide more aid to the eurozone economy, there is growing speculation that new BoE Governor Mark Carney may be more willing to embrace alternative steps to boost growth.

The Bank of England’s Monetary Policy Committee will make its latest policy decision on Thursday 1 August, and is widely expected to make no change to either the UK’s base rate or to its amount of quantitative easing this month.

The minutes from the last meeting showed that the committee was in agreement that the UK’s economy was in need of more help, but the discussion on how best to tackle that was being deferred until the issue of whether to introduce forward guidance had been decided.

A small group of the nine-member committee are thought to back further bond purchases, but the introduction of forward guidance by the MPC as an alternative method of stimulus now seems a more likely prospect.

Whether the MPC adopts forward guidance and greater communication as its policy tools of choice or if it will opt for additional bond purchases remains to be seen, but it does seem as though the Bank of England is likely to pursue stimulus in one form or another more actively than the ECB.

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