Mark Carney the head of the Bank of England (BOE) has come under scrutiny following the decision to cut interest rates shortly after the electorates vote to leave the EU. The BOE has been criticised for what some consider to be a knee jerk reaction, personally I think the initial fall out could have been worse and the decision to drop limited damage.
The rate decision at 13.00 today will be keenly watched as there is the possibility of a further cut to a new record low of 0.05%. If this occurs expect the pound to suffer. Some argue that a lower pound will encourage more domestic spending, I would argue that we are too heavily reliant on exports particularly consumables and it won’t be the big boys who will be taking the hit. It will be the consumers and I expect a rapid rise in inflation over the coming months.
I think another rate cut is too soon and there would be a lot of criticism should a cut occur. It is one also one of the last tools in the BOE’s arsenal, where do you go once we hit 0.05%, negative interest rates in the UK? Never.
If you do have a requirement selling the pound it may still be wise to move before the decision. If you look at risk reward. The risk there is a cut? Sterling falls several cents in value. No change? little gains for the Pound. Looking forward I do not think there is much chance of a pound rally against any major currencies unless out side factors come into play. Apart from GBP/USD , if Trump gets in expect the pound to strengthen. Trump’s wild ideas on curbing trade with China and immigration would write trillions off GDP.
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Executive Dealer – Foreign Currency Direct