Sterling rallies as “QE2” fears sink

News that UK economic growth is double the expectation in the 3rd quarter has tempered expectations of additional quantitative easing by the Bank of England sparking a rally for Sterling.

Andy Scott, Foreign Exchange Dealer at HiFX, explains: "With economic growth having beaten expectations in the last 2 quarters this surely must cast doubt over whether the Bank of England will increase Q.E. especially with inflation running at 3.1%. Paul Tucker, a member of the Bank of England's monetary policy commented yesterday that the chances of further QE appear dependent on further deterioration in the economy and credit channels. From today's figures it appears the former isn't currently happening as much as many have been forecasting and even if economic activity slowed to a halt in the final 3 months of this year, the U.K. economy will have grown by 2.3% in 2010 (subject to any revisions). As the governor of the Bank of England highlighted again yesterday, the economy still faces a bumpy road ahead but the case for additional easing looks weaker after today's numbers. The Q.E. debate will no doubt continue for sometime yet."

Sterling is higher across the board, in particular against the US Dollar where it appears the argument for additional easing or "QE2" has already been won. At 10am GBP/USD was trading around 1.5870, up just under 1%.