The British pound ended Monday mixed against the majors, falling versus the US dollar, Japanese yen, and Swiss franc while gaining against the Australian dollar and New Zealand dollar. Overall, though, the currency remains in consolidation mode and looking at GBP/USD in particular, either a break above 1.5000 or a drop below 1.4150 will be needed before we can cite a true directional move. Meanwhile, comments by Bank of England Deputy Governor Charles Bean highlighted the bleak outlook for the UK economy, as he said that the central bank would probably have to “expand the range of assets purchased under the scheme to include government debt” since the Monetary Policy Committee is “running out of room for further cuts.” By buying up governing debt, the BOE could theoretically bring down yields, which automatically creates some downside risks for the British pound in the long-term. Bearish potential for the currency also looms in the near-term as UK Consumer Price Index (CPI) is forecasted to have fallen negative for the fourth straight month in January at a rate of -1.0 percent, which could drag the annual rate down to a 10 month low of 2.7 percent from 3.1 percent. Such a decline would be important because it would put inflation back into the BOE’s preferred range of 1 percent - 3 percent and closer to their target of 2 percent. If CPI falls more than expected, the British pound is likely to drop as the markets will increase speculation of a cut to the Bank Rate on March 5. On the other hand, if the annual rate of CPI growth holds above 3 percent, the currency could gain on expectations that the BOE will leave rates unchanged.
Related Article: British Pound Weekly Trading Forecast
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