Wednesday, February 20, 2008

Bank of England Minutes Could Save the British Pound

Bank of England Minutes Could Save the British Pound
by FX Daily
There was no data released from the UK yesterday and as we expected, the Northern Rock story continued to weigh on the British pound.

Nationalization is never good news for a developed country and the credibility of the UK government which has already been dealt a serious blow will come under more fire in the coming weeks. In the meantime, there could be a potential for a British pound recovery today. The Bank of England will be releasing the minutes from their latest monetary policy meeting this morning, along with money supply figures and the CBI Industrial Trends Survey. Although the Bank of England cut interest rates by 25bp earlier this month, the accompanying statement and Quarterly Inflation Report released last week was not extremely dovish. Even though BoE Governor King recognized the downside risks to growth in the Quarterly report, he raised the bank’s inflation forecast and warned that near term inflation will continue to breach their 2 percent goal while running the risk of breaching the government’s 3 percent limit. If inflation rises beyond 3 percent, King would be obligated to write a letter of explanation to Alistair Darling, the Chancellor of the Exchequer. With this even being a remote possibility, it will be difficult for King to justify another rate cut.

No comments: