gbp fundamentals

British Pound Rallies Despite Signs of Impending BOE Rate Cut on Thursday

Tuesday, 06 January 2009 21:13:35 GMT  |  Terri Belkas, Currency Strategist

The British pound continued to stage its rebound, and despite the fact UK interest rates are relatively low at 2.00 percent, the currency has been trading in a similar manner to that of more speculative carry trades like the Australian dollar and New Zealand dollar. However, UK economic data was broadly bearish as Nationwide home prices fell for the 14th straight month in December, bringing the annual rate down to -15.9 percent, which is the lowest in at least 17 years as record-keeping began in 1992. Meanwhile, the Purchasing Managers’ Index (PMI) for the UK services sector edged up to 40.2 in December from 40.1. There’s little optimism to be had in light of this release though, as the index has held below 50 - signaling a contracting in business activity - for 8 consecutive months. All of this leaves the odds in favor of a rate cut by the Bank of England on Thursday, and Bloomberg News is forecasting that the Bank of England will cut rates by 50 basis points. However, the reaction of the British pound may depend on what sort of bias is reflected in the Monetary Policy Committee’s subsequent statement, and as we saw with the December 4 rate cut by the BOE, the currency could actually rise following a rate cut.


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