British Pound: Possible Rate Cut in 2008

The British pound was the only high yielding currency pair to not rally against the US dollar today. Fundamental and technical factors are calling for major losses in the British pound. To the surprise of the market, the Bank of England’s Quarterly Inflation report revealed a central bank that is still struggling to balance weaker growth with stronger inflation.

They revised their 2008 GDP forecasts from 2.7 percent down to 2.4 percent which is a big change and warned that they expect the inflation rate to rise above their 2 percent target next year before falling back below it in 2009. The uncertainties surrounding inflation and growth are both increasing leading Bank of England Governor King to forecast more difficult times ahead. Over the past few weeks, UK economic data has revealed cracks in the economy prompting some traders to call for an interest rates cut by the Bank of England in the first quarter of next year. Meanwhile the labor market remains tight with the unemployment rate at a 2.5 year low which suggests that retail sales tomorrow could surprise to the upside.