British Pound Outlook Hinges Upon the Bank of England’s Rate Decision
The British pound has spent most of the past month or so falling toward support at 1.4400, as the markets anticipate that the Bank of England will continue cutting rates aggressively. This could remain the case at the start of next week ahead of the BOE’s next rate decision on January 8, as Bloomberg News is forecasting that the Bank of England will cut rates by 50 basis points at 7:00 ET, while Credit Suisse overnight index swaps are fully pricing in a 25 basis point reduction. This is indeed within the realm of possibilities since the UK has tipped into recession and the BOE, and UK government, anticipate that things will only get worse. In fact, the BOE’s latest Credit Conditions Survey for the fourth quarter indicated that they had deteriorated, with the availability of loans down despite unexpectedly stable demand for mortgages. Furthermore, the survey said that spreads on secured lending to households and on corporate lending had widened, while defaults on household and non-financial business loans had increased. Overall, this leaves the odds in favor of year another rate cut by the BOE on January 8 and potential for EUR/GBP to target parity, but the reaction of the British pound may depend on what sort of bias is reflected in the Monetary Policy Committee’s subsequent statement.
Related Article: British Pound/US Dollar Exchange Rate Forecast
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