Quantitative easing (QE) is a central bank policy of buying financial assets, mainly government bonds, with newly created reserves. It is used when the policy rate is already close to its lower bound and the bank wants to push longer-term yields down further. QE expands the central bank's balance sheet; it does not change the headline rate.
How QE reaches the currency market
QE works through two channels that both end in the same place: interest rate expectations.
The first is the portfolio channel. The central bank buys bonds from banks, funds and insurers, paying in reserves. Bond prices rise, so bond yields fall, and holders of the sold securities have cash to place elsewhere. The second is the signalling channel: a purchase programme tells the market that the bank intends to keep policy loose for a long period, which pulls down the expected path of short-term rates.
Currency quotes respond to the difference between two economies' expected rate paths, not to the size of a balance sheet. That is why the reaction to a QE announcement depends on what was already priced in before it. An announcement that is smaller than the market expected, or one that only confirms what officials had already flagged for months, can be followed by a currency that rises, falls, or barely moves. There is no fixed rule that maps QE to a direction, and this entry does not offer one.
QE, QT and a rate cut are not the same thing
These three are routinely mixed up, so it is worth separating them.
- A rate cut changes the price of overnight money: the policy rate itself.
- QE changes quantities. The bank creates reserves and takes duration out of the market. The balance sheet grows.
- QT (quantitative tightening) reverses that: the balance sheet shrinks, either by letting maturing bonds roll off without reinvestment or by selling holdings outright.
The two dimensions are independent. A central bank can raise its policy rate and run down its balance sheet at the same time, as several did from 2022 onwards, and it can hold the rate steady while still buying.
Where QE announcements are published
Purchase programmes are announced in the central bank's own policy statements, which are the primary source and are free to read:
- The Federal Reserve began large-scale asset purchases in November 2008, with further programmes in 2010, 2012 and March 2020 — federalreserve.gov.
- The Bank of England launched gilt purchases through its Asset Purchase Facility in March 2009 — bankofengland.co.uk.
- The ECB announced its public sector purchase programme in January 2015 and the pandemic emergency purchase programme in March 2020 — ecb.europa.eu.
Treat commentary about these programmes as commentary. The decision text, the vote and the stated amounts come from the bank.
Where to check the dates: scheduled central bank meetings and release times are listed in the ABF Trade economic calendar.
