British Pound Tanks As BoE Minutes Reveal Unanimous Support for a Rate Cut

So far this week, one of the best trades in currency market has been to sell British pounds.

The nationalization of Northern Rock as well as the surprisingly dovish minutes from the Bank of England’s latest monetary policy meeting has pushed the GBP/USD within 50 pips of its 12 month low. Last week, the Bank of England released a relatively hawkish Quarterly Inflation Report, where they warned that inflation could breach the government’s 3 percent limit this year. This led many people to believe that the decision to cut interest rates earlier this month would meet resistance. However to the market’s surprise, not only did every single member of the MPC vote in favor of cutting interest rates, Blanchflower actually voted to cut rates by 50bp instead of 25. According to MPC member Barker, the slowdown in the economy is more worrisome than rising inflation. Another 50bp of easing has already been priced into the futures market and there is a decent chance that rates will fall to 4.25 percent before the BoE is done. Retail sales are due for release tomorrow and we expect the strength of the labor market to drive up spending.