The Bank of England or BoE warned that the recovery outlook for the England economy is still not clear. Furthermore, inflation is not yet showing the significant progress. That is why; BoE will not change the interest rate and maintain the amount of obligation purchase.
The value of that obligation is 895 billion this month. The Committee does not have a plan for tightening its monetary policy at least until there is a clear evidence about the significant progress. That is the one which was created in the spare capacity elimination.
It must reach the inflation target of 2.0%. That statement was made by the Bank of England on Thursday. Spare capacity itself is a condition that refers to the economy ability to add more employment without any risks to increase the inflation. That Bank reports other things too.
The Small Chance for Inflation
BoE noted that the cost needed for March will create the fiscal tightening in a middle-term situation. That can make the recovery since April 2022 and so on is slower. This situation makes the investors are more carefully to take an action due to the economic prospect.
The Bank of England also noted that they only see a Little chance of the England inflation to increase beyond the target at the end of this year. The cause is the energy price rebound. Furthermore, the employment aspect also decrease because of this long pandemic.
That is why; the central bank expects that the British economy will need more time to recover its employment and go to a direction where the salary can be increased. If that is done properly, it may start to support the inflation to move higher.
It means that BoE will still maintain its interest rate near the current level. That statement makes Sterling is weakened now. It is weakened in the USD. The cause is an expectation owned by the market where they thought that the Bank will show the different thing.
The Hope of Hawkish Boe Cannot Be Realized
So far, the market expects that the England Central Bank will show the indication of monetary tightening. The GBP/USD slipped by 0.19 percent to 1.3930. However, it still on its high level which was formed in the sales session yesterday. What is the cause?
In fact, the main supporter which increases the Sterling exchange rate in 2021 is the decreasing possibility of BoE to introduce its negative interest rate. However, the England economic is now growing really fast in line with the vaccine implementation.
It makes market speculates that BOE is considering the increase of interest rate lately. The BOE dovish statement like today makes sterling is a little weakened. That Bank decided to maintain their monetary policy and the statement is quite dovish.
It is especially on the outlook about the existence of weakened in the employment market of England. Elsewhere, the US Dollar was increasing again on Thursday. The cause is the increase of obligation yield that helps it from a decline due to The Fed’s statement and speculation.
The Dollar Increase Data
The Index of dollar increased by 0.26% to the 91.68 when this news written. In a session before, the index of USD declined by 0.56% to the 91.3. That was a lower level in these last Two months. That currency reacted based on the people expectation.
The monetary decision stated by The Fed cut the interest rate speculation which is in line with the American economy recovery. The economic growth maybe will reach up to 6.5 percent and become the highest jump since 1984. Inflation may be higher this year.
It can be increased by 2.4 percent which is higher from the 2.0% target. However, the United Stated central bank will still in its commitment to run its accommodate monetary policy and maintain the interest rate around zero although the inflation rises.
