There were no economic releases on hand for the British Pound on Thursday, but lingering sentiment from Wednesday’s BOE Quarterly Inflation Report was enough to continue weighing on the currency.
Indeed, the central bank offered a bleak picture of UK economic conditions, as they revised their growth projections sharply lower for 2008 – 2009 and even said that GDP could be negative for one or two quarters. Meanwhile, the markets have shifted to price in more aggressive rate cuts by the BOE over the next 12 months, as Credit Suisse overnight index swaps are now pricing in almost 75bps worth of cuts compared to 50bps just a few days ago. The odds are against the BOE, but we believe that the central bank will not move to cut rates until 2009 as they try to allow the UK’s economic slowdown to bring down inflation pressures. In the near-term, [B]GBP/USD is likely to continue consolidating above the recent lows at 1.8650, but I still believe that the pair will ultimately move down for a test of 1.85[/B].