The British pound ended the week nearly 3 percent lower versus the greenback last week, which isn’t half bad when you take into consideration the Bank of England’s massive 150bp rate cut that brought the Bank Rate down to a 53-year low of 3.00 percent.
British Pound Could Tumble If BOE Confirms Deflation Is A Concern
Fundamental Outlook for British Pound: Bearish - UK Manufacturing PMI improved very slightly, but held below 50 – signaling contraction – for the 6th straight month - UK HBOS home prices fell by the most on record in October, indicating the housing collapse is far from over - The Bank of England slashed interest rates by 150bps to 3.00% - the lowest since 1955
The British pound ended the week nearly 3 percent lower versus the greenback last week, which isn’t half bad when you take into consideration the Bank of England’s massive 150bp rate cut that brought the Bank Rate down to a 53-year low of 3.00 percent. However, with US economic arguably just as negative for the greenback given the surge in the unemployment to a 14-year of 6.5 percent and the loss of over a million jobs since the start of 2008, it’s a little easier to see why GBP/USD hasn’t collapsed. However, this week’s economic releases could be crucial to the status of the currency.
UK releases such as PPI, BRC retail sales, and the trade balance don’t tend to be very market-moving for the British pound. However, Wednesday’s indicators could really shake things up as jobless claims in the UK are anticipated to rise for the ninth consecutive month in October, adding to evidence that the combination of a slowing global economy, sharp declines in domestic consumption, and the continuous collapse of the UK housing sector are bound to make the UK economic contraction extend for a lengthy amount of time. Indeed, the jobless claims change is anticipated to rise by 40K, the largest single-month gain since 1992, and while this could impact the British pound upon release at 4:30 ET, the announcement of the Bank of England’s Quarterly Inflation Report may be more important. Given the BOE’s latest policy statement following their aggressive 150 basis point rate cut, it appears that the Monetary Policy Committee is now more concerned about the potential for deflation, and if the Inflation Report confirms this outlook, the news could trigger a large British pound sell-off.