British Pound Lower After the BoE Keeps Interest Rate Unchanged

Talking Points:

- The British Pound dropped more than 0.30% versus the US Dollar.

- Benchmark rate unchanged at 0.50%, as expected.

- Asset Purchase Target unchanged at £375b, as expected.

Losing Money Trading GBP/USD? This Might Be Why

The British Pound dropped more than 0.30% (at the time this report was written) after today’s BoE rate decision, in which the Central Bank decided to keep the benchmark rate unchanged at 0.50%. The BoE also voted to keep the Asset Purchase Target unchanged at 375b, also as expected. The Monetary Policy Committee (MPC) voted 1-8 to keep the rates at the current level, as in the last meetings, with McCafferty the only member opting for a hike.

Looking into the meeting minutes, the MPC said that Core inflation remains subdued, and CPI inflation is expected to stay below 1% until the second half of next year. The MPC commented that in order to return to their 2% inflation target, there is a need to see an increase in domestic cost growth sufficient to balance the drag from the subdued global inflation and past increase in the Sterling. Given the fact that the BoE is far from their inflation target at the moment, the market seemed to have interpreted the decision and the minutes as leaning toward the dovish side, and the British Pound declined.

DailyFX Currency Analyst David Song raised the possibility earlier that if the BoE continued to vote 8-1 and promoted a Wait-and-See Stance, the British Pound could drop.

GBPUSD 5-minute Chart: December 10, 2015

-- Written by Oded Shimoni, DailyFX Research

To contact Oded, email him at instructor@dailyfx.com