British Pound Drops on Inflation Weakness as Rates Unchanged

Talking Points:

• The Pound dropped more than 0.3% versus the US Dollar
• BOE keeps rates unchanged at 0.5%
• Sterling’s appreciation dampening core CPI

The Pound dropped more than 0.3% versus the US Dollar after today’s BoE rate decision saw interest rates unchanged at 0.5 percent. The Monetary Policy Committee (MPC) voted by a majority of 8-1 to maintain the Bank rate at 0.5 percent. The MPC also voted unanimously to maintain QE bond purchase at a total of £375b billion.

The BoE is widely regarded as second in line to raise rates after the FED. With that being said, today’s monetary policy summary emphasized CPI inflation weakness after twelve month CPI was zero in August, below the 2 percent inflation target rate. The MPC signaled the ‘dampening influence’ of sterling’s appreciation on import prices as a factor contributing to core inflation being subdued at 1 percent. The market seemed to interpret the rhetoric in the policy summary as leaning more on the dovish side.

DailyFX Currency Strategist Michael Boutros identified Interim support in the GBP/USD at 1.5237 ahead of the rate decision.