British Pound Down Ahead of BOE Meeting - What to Expect

The British pound took a hit against the US dollar, Japanese yen, Swiss franc, and euro, with the daily charts showing that GBP/USD formed a bearish engulfing candle. The move had more to do with risk appetite, as usual, and UK fundamentals were rather optimistic once again. Markit Economics said that PMI for the UK services industry rose to 51.7 in May from 48.7, indicating growth for the sector for the first time in a year.

All told, the data adds to evidence of stabilization in the economy and also suggests that the Bank of England will leave rates unchanged on Thursday for the third straight month at an all-time low of 0.50 percent. Ultimately, how the British pound responds to the rate decision will likely depend on the BOE’s QE stance in their policy statement. Signs that the BOE may increase their gilt purchases could weigh heavily on the British pound, especially against the euro, while the opposite (steady rates, no QE expansion) could provide a boost to the UK’s currency, though the markets are just as likely to show no reaction in this case.

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