The British pound continues to slump toward 1.60 amidst demand for dollars and in anticipation of the Bank of England’s monetary policy decision next week. The BOE is widely expected to follow up their October 8 rate cut with yet another 50bp cut to 4.00 percent on November 6 at 7:00 ET, as the UK economy tips into recession and the financial markets remain unstable.
While UK CPI remains well above the BOE’s 2 percent target and 3 percent ceiling at 5.2 percent, weaker commodity prices have led inflation outlooks around the world to drop rapidly. Furthermore, BOE Monetary Policy Committee member David Blanchflower, who has long been the most dovish of all the members since joining the MPC in mid-2006, was as staunch in his bias as ever when he noted that he thought 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. Mr. Blanchflower also said that UK interest rates must be lowered significantly and quickly. If the BOE does indeed cut rates, especially if they enact something even more aggressive than forecasts like a 75-100bp cut, the news will weigh heavily on the British pound. Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.