British Pound Experiences Heavy Volatility, May Still Face Downside Risks

There was no UK data on hand for the day, but instead, we’re seeing that volatility remains high and leaves the major currencies prone to exceptionally choppy price action. This makes trading in current conditions very difficult, but one thing is clear: the British pound still looks bearish and these recent moves may simply have formed a bull trap. On Wednesday, the Bank of England forecasted 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. Now, Credit Suisse overnight index swaps have shifted to 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. With lingering risk aversion and bearish interest rate expectations unlikely to fade anytime soon, GBP/USD could easily return to the recent lows of 1.4557.

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

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