fundamental alert

BoE Governor Mervyn King Sparks Speculation for Currency Intervention as Pound Drops to Record Lows, Highlights Deflationary Risks

Wednesday, 12 November 2008 10:34:09 GMT  |  DailyFX Research

BoE Governor King said if Sterling falls far enough, it would be a concern, but noted that he is not surprised of the recent depreciation. Sterling has depreciated sharply on a deteriorating growth outlook for the U.K. and hit a six year low against the dollar today and a record low against the euro. At the press conference following today's Inflation report release, Governor King also stressed that he does not want to see Sterling fall particularly sharply and in today's Report, the BoE also noted that the Sterling fall is likely to have weaker pass-through effect to retail prices than in the past, hence exercising less upward inflationary pressure.
In addition, he said the bank is prepared to go to whatever rate necessary to get CPI to target and acknowledged that there is a risk for deflation. Speaking at the press conference following the release of the central bank's November Inflation Report, King also noted that it is "very likely" that RPI inflation will turn negative next year, this "reflects more the fact that we cut interest rates this year, That alone will push RPI into negative territory". King said that the Bank is prepared to cut rates further, if needed, and added that it would be perfectly sensible to see some fiscal stimulus at this point. (The Treasury is due to release its pre-budget report this month.) Overall, today's Inflation Report supports the outlook for further rate cuts ahead.
Meanwhile, Pound-Dollar (GBPUSD) traded at a new trend low of 1.5204. Sterling losses continued to outpace the Euro amid expectations of further aggressive policy action from the BoE, which saw EUR-GBP rifle through 0.8200 and extend to 0.8237 record highs.

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars