The British pound gained throughout much of the morning to reach an intraday high of 1.5249, but subsequently fell back below 1.50 as UK interest rate expectations remain in favor of GBP/USD weakness.
The earlier gains in the pair were surprising given the contents of the Bank of England’s Monetary Policy Committee meeting minutes from November, which were released at 4:30 ET. The MPC was quite bearish on prospects for the UK economy and financial markets, while they also noted the projections from their latest Inflation Report, which showed CPI falling sharply in the near-term and below the BOE’s 2.0 percent target in 2009. The part that was most surprising, though, was that the MPC discussed cutting rates by more than 200bps before voting unanimously to reduce the Bank Rate by 150bps to a 53-year low of 3.00 percent. This only added to speculation that the BOE would continue reducing rates, and Credit Swiss overnight index swaps are nearly pricing in a 75bp cut during their next meeting in December. Looking ahead to Thursday, the release of UK Retail Sales is expected to show that consumer spending fell 0.9 percent in October, dragging the annual rate to a nearly 2-year low of 1.4 percent. The latest BRC retail sales numbers support the case for such a move, as their measure of same-store sales plunged 2.2 percent in October from a year earlier. However, this is not always the most reliable leading indicator, and the BOE has said in the past that they may focus more on private surveys over government statistics, as the latter tends to be extremely volatile. As a result, traders should keep in mind that regardless of this upcoming number, the BOE likely still holds a bearish view of UK consumer spending.
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