It has been a strong week for the British pound despite mixed economic data. Even though activity in both the manufacturing and construction sector accelerated in the month of July, service sector activity slowed. All of these indices remain well above it comparative US levels, which is the reason why the currency has outperformed the US dollar.
The Bank of England left interest rates unchanged, which made the rate decision a non-event, but next week Central Bank Governor King will be delivering their Quarterly Inflation Report. Based upon the price action in the British pound, traders expect the central bank to remain hawkish and signal the possibility of another rate hike this year. Although this is the most likely scenario, when it comes to the Bank of England, always be prepared for surprises since the UK is also being hit by the US subprime problems. According to the Council of Mortgage Lenders, foreclosures have hit an 8 year high.