British Pound Falls Nearly 3% Below 1.50 as Bank of England Signals Significant Rate Cuts, Won’t Rule Out ZIRP

The BOE’s forecasts predict that the UK economy will contract through 2009 and CPI will fall “well below” the government's 2 percent target and could even fall negative, signaling deflation, unless it cuts rates further. Subsequently, Credit Suisse overnight index swaps have shifted to almost fully price in a 50bp rate cut by the BOE during their next meeting on December 4, but this could shift even further in coming weeks as BOE Governor Mervyn King said that interest rates could fall much lower from current levels, and declined to rule out cutting rates to zero. GBP/USD ended the day by consolidating above 1.49, but with lingering risk aversion and bearish interest rate expectations unlikely to fade anytime soon, the pair could easily break below this level. The next major region of support looms at 1.4680/1.4700.

Related Article: British Pound Could Tumble If BOE Confirms Deflation Is a Concern

Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.