The credit crisis continues to hit the UK hard as the government was forced to nationalization yet another bank - Bradford & Bingley - marking the second seizure in the UK this year.
As a result, the British pound fell approximately 300 points against the US dollar during the European trading session. The UK Treasury said in a statement it had tried to seek out private-sector solutions, but ultimately though nationalization was the best option for maintaining financial stability as the UK's Financial Services Authority said over the weekend that Bradford & Bingley no longer met the regulatory requirements for operating as a deposit taker. The news also sent the FTSE 100 down 5.3 percent by the market close, while UK Gilts rocketed higher amidst risk aversion. While the British pound did rack up some gains during the New York trading session, the currency remained weak toward the end of the day as the fundamentals remain wildly out of favor for the UK. In fact, Credit Suisse overnight index swaps are pricing in over 125bps worth of rate cuts by the Bank of England (BOE) during the next 12 months. While the BOE is not anticipated to reduce rates at their next meeting on October 9, the sentiment alone could weigh on GBP/USD. In the near-term, I think we’re likely to see the pair drop below 1.80 to the next level of support at 1.7900/16. However, if the final reading of UK Q2 GDP on Tuesday morning is revised down from current estimates of 1.4 percent (annualized), GBP/USD could easily drop toward 1.7725.
Check out
Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.
British Pound Plunges 300 Points on Second UK Bank Nationalization
Linear Mode
