The British pound ended the day slightly lower versus the US dollar, and is down almost 2.5 percent from last week’s close.
There was no data on hand today, but bearish sentiment on the currency is proving hard to shake, especially since Credit Suisse overnight index swaps are pricing in almost 100bps worth of cuts within the next 12 months. While the Bank of England is widely anticipated to leave rates unchanged at 5.00 percent on Thursday, [B]I think there is some potential for a surprise rate cut.[/B] Commentary by Bank of England policy makers and government officials suggests that many are truly worried that the UK is headed for recession, and it’ll be worth watching to see of MPC member David Blanchflower will remain the lone dove of the group, or if the sharp economic slowdown will convince others to vote for a reduction in the Bank Rate as well. Unfortunately, if the central bank leaves rates unchanged, no policy statement will be released and traders will have to await the release of the minutes from the meeting on September 17 for a glimpse at the vote count.