The British pound extended its losses against the US dollar and hit a record low against the Euro on the back of zero consequential economic data.
Although dollar strength could be partially blamed for the currency’s latest string of weakness, the main reason for the market’s bearishness is their concern that the UK could be in just as much trouble as the US. The only difference is the outlook for monetary policy. With the Federal Reserve, it is clear that they will continue to cut interest rates. Although the ECB is on the other side of the spectrum, they too have let the market know that interest rates will remain on hold for some time. The outlook for the BoE on the other hand is more convoluted. Even though economic data suggests that they should continue to lower interest rates, King warned this morning that it is crucial for them to prevent inflation from getting entrenched.