QE and QT in plain English: what do they do to a currency?

Quantitative easing creates central bank money to buy bonds; quantitative tightening reverses it. Both change the amount of money sloshing around and feed into currency values — but the chain of logic is long and often oversimplified.

Try explaining QE and QT in two plain sentences each, as if to a friend who's never traded. Then the community can compare and correct.

The QE and QT guide gives the full picture.

QE and QT in plain English: what do they do to a currency? — central bank rate path diagram
A central bank's policy rate path across recent meetings
QE and QT in plain English: what do they do to a currency? — risk-reward diagram
A risk-reward ratio of 1 to 2

Background: Quantitative easing and quantitative tightening explained

In quantitative easing, central banks create reserves to buy bonds; in quantitative tightening they shrink those holdings. How QE and QT work, the Bank of England's £895 billion programme, and the effects on currencies.

What is quantitative easing?

A policy in which a central bank creates reserves to buy large amounts of bonds, lowering long-term interest rates to support spending and help meet its inflation target.

How much QE did the Bank of England do?

£895 billion in total: £875 billion of UK government bonds and £20 billion of corporate bonds, from March 2009 to the last increase announced in November 2020.

Read the full guide

Comments

Log in to join the discussion. Comments follow the community guidelines.

Log in to comment

Loading comments…