The forex performance of the British currency recently strengthened because many currency traders and equity investors have regained the confidence because of the better economic figures, indicating stronger recovery. Many investors in the financial markets think that the possibility of another round of quantitative easing will become unlikely if the economy begins to show stronger recovery. According to the latest figures, the British economy posted a 0.8% growth for the third quarter this year. Although it is lower than the 1.2% growth rate for the second quarter, it is double the original prediction.

Even the credit rating agency Standard & Poor’s was also convinced of the improvement in the UK economy that its ‘negative’ rating was upgraded to ‘stable.’ The rating agency also used the government plan for budget cuts as basis. It can be recalled that the Chancellor of the Exchequer, George Osborne, recently outlined the coalition government plan to slash £81 billion from the budget as a necessary austerity measure.

The stronger-than-expected economic growth came as a good surprise both to the foreign exchange market and the equity market. It also significantly reduced the likelihood that the Bank of England will again initiate quantitative easing to provide economic stimulus. The previous quantitative easing amounted to £200 billion in investments and bank notes.

According to many economic experts, the strength of the latest economic figures meant that it would be unlikely for the Bank of England to again pump newly printed money in the economy. On the other hand, some say that the threat of another round of quantitative easing is only temporarily halted. As a result of the optimistic moods, the British currency gained strength against the dollar and the euro by more than 1% in its latest forex rally.

The recent GDP figures clearly have positive effect on the sterling. The latest GDP figures have resulted in an optimistic outlook for investors and reduced the possibility of another round of quantitative easing in the near future at least. Previously, the Bank of England’s monetary policy committee minutes of meeting for October have indicated a three-way split among the members on how to address the economy. One member favoured increasing the base interest rates. Another one favoured quantitative easing. The rest of the members, however, voted for the status quo.

According to one dissenting MPC member, Adrew Sentance, if the interest rates will be increased, it will serve as cushion against inflation, reducing it from the current 3.1% to the Bank of England’s target of only 2%. Meanwhile, another dissenter, Adam Posen favoured quantitative easing to boost the British economy.