Pound Appreciates As BoE Saunders Signals Early End To QE Program

The pound climbed against its major counterparts in the European session on Thursday, after Bank of England policymaker Michael Saunders hinted at the likelihood of ending its bond buying program soon to counter the spike in inflation.

Economic activity appeared to have recovered a little faster than the central forecast in the monetary policy report released in May and the output gap is likely to close soon, Saunders said in a speech.

There is "clear evidence" that GDP has regained most of the lost ground in recent months, spare capacity in the labour market is declining, and the economy continues to grow rapidly. GDP is likely to regain pre-pandemic peak in the "next few months", Saunders added.

Core inflation is no longer below target and it is forecast to rise further in the coming months.

"If activity and inflation indicators remain in line with recent trends and downside risks to growth and inflation do not rise significantly, then it may become appropriate fairly soon to withdraw some of the current monetary stimulus in order to return inflation to the 2% target on a sustained basis."

Saunders further indicated that options to withdraw stimulus include halting the current asset purchase program in the next month or two and before the full £150 billion has been purchased; and further monetary policy action in 2022.

The currency was weighed by a spike in COVID-19 cases in the U.K. earlier in the session.

The number of coronavirus cases in the country crossed the 40,000-mark on Wednesday, touching 42,302.

Data from the Office for National Statistics showed that the UK employment increased in three months to May signaling that the labor market continues to recover.

There was a quarterly increase in the employment rate of 0.1 percentage points to 74.8 percent.

At the same time, the ILO unemployment rate decreased 0.2 percentage points to 4.8 percent. In three months to April, the jobless rate was 4.7 percent.

The pound climbed to a 2-day high of 1.3899 against the dollar, after falling to 1.3813 at 3:45 am ET. If the pound continues its rise, 1.41 is possibly seen as its next resistance level.

Recovering from its early 6-day lows of 151.61 against the yen and 1.2619 against the franc, the pound edged higher to 152.81 and 1.2724, respectively. The pound may find resistance around 154 against the yen and 1.29 against the franc.

The pound reached as high as 0.8511 against the euro, up from a 6-day low of 0.8568 seen at 4 am ET. The pound is likely to find resistance around the 0.84 level.