gbp fundamentals

British Pound Due to Retrace Gains Next Week?

Friday, 09 January 2009 20:56:22 GMT  |  Terri Belkas, Currency Strategist

The British pound remained relatively strong on Friday, as it surged against the euro but slipped versus the US dollar toward support at 1.5135.  The moves have been somewhat surprising in light of the fact that the Bank of England cut the Bank Rate to the lowest level since the bank was founded in 1694. However, the BOE’s 50 basis point reduction was in line with expectations, so there was no surprise factor coming in to play. Meanwhile, though the Monetary Policy Committee’s (MPC) subsequent policy statement was quite bearish on economic conditions in the UK and abroad, they did not give any indication that they would cut rates again during their February 5 meeting. At this juncture, actual rate cuts are having little impact on the currency markets, as traders are more focused on comparative long-term interest rate expectations. Next week, there will be no key UK economic indicators released, but it will be very important to watch sentiment trends as we’ve started to see signs emerge that risk aversion is making a comeback, which tends to work in favor of US dollar and Japanese yen strength.


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