The British pound gained nearly 3 percent against the greenback on Wednesday as a broad surge in carry trades signaled an improvement in investor confidence.
Indeed, with interest rates in the UK at a relatively high 4.50 percent, GBP/USD essentially qualifies as a “carry trade” pair. It was interesting to see that the currency completely brushed off dovish commentary by Bank of England Monetary Policy Committee member David Blanchflower. Indeed, Mr. Blanchflower has long been the most dovish of all the members since joining the Committee in mid-2006, as he has consistently voted for rate cuts since October 2007. He remains as staunch in his bias as ever, as he said this afternoon that UK interest rates must be lowered significantly and quickly, adding to speculation the BOE will cut rates aggressively on November 6 from 4.50 percent by at least 50bps. Mr. Blanchflower also indicated that deflation was a bigger concern than inflation, and that CPI may fall from the September reading of 5.2 percent down to 1 percent, or could even go negative. Overall, fundamental factors present hefty risks for the British pound and could come into play tomorrow morning as UK Nationwide home prices are forecasted to show that they dropped 14.7 percent in October from a year earlier, the worst reading since records began in 1992. Related Article: British Pound Dives On UK Recession News - Rebound Potential? Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.