FX markets fear the Bank of England will force negative interbank interest rates to stimulate lending and that sterling will suffer as a result, says a leading foreign exchange specialist.
The MPCs decision to leave interest rates and its quantitative easing programme alone has come as no surprise to the market, says Mark OSullivan, director of dealing at Currencies Direct. Sterling rose to USD 1.6583 following the decision, but with bank lending to businesses and consumers still at an all time low, the UK economy will continue to face headwinds going into the end of 2009.
There is fear in the market that the Bank will have no alternative to introduce negative interbank rates to stimulate lending and this will see sterling suffer as a result. We may just see fireworks before November.
D.C.