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British pound Rallies on Strong Data

Wednesday, 11 April 2007 21:35:28 GMT

Written by Kathy Lien, Chief Strategist
The British pound was the story of the day as it was one of the few currency pairs that managed to rally against the US dollar.  Strong economic data reminded the markets that the Bank of England is still on track to raise interest rates later this year.  Leading indicators increased by 0.8 percent in the month of February while the BRC sales monitor jumped by 6.2 percent in the month of March. 

To go from voting 8-1 to leave interest rates unchanged, with the one dissenting voter rooting for a rate cut in March to a rate hike in April was too big of a jump for the central bank to make.  However the votes should have leaned closer to a rate hike in April, paving the way for an actual dose of tightening in May or June.  We will know more on this come April 18th, when the minutes from the meeting earlier this month is released.  In the meantime, as long as UK data continues to come out strongly, the market will look for higher rates, snapping up British pounds in the process.  Meanwhile, the pound also received a boost from an FT story revealing that the Treasury is discussing proposals to allow UK firms to repatriate some of their international profits tax free.  This reminds us of the tax holiday offered by the US Homeland Investment Act back in 2004. If passed, it would be exceptionally bullish for the British pound.  However, it is only being discussed and has not been passed by the Treasury at the moment, so it could be some time before we actually see the flow.  

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