The [B]British Pound[/B] may face considerable selling pressure in European hours as the [B]Bank of England[/B] prepares to issue October’s monetary policy announcement. BOE Governor Mervyn King has done everything in his power to project a dovish bias since the last rate decision, telling the House of Commons Treasury Committee that policymakers are considering cutting the interest rate they pay on bank deposits to encourage lending and talking down the currency with assertions rebalancing the UK economy was “very necessary [and] the fall in the exchange rate that we have seen will be helpful to that process” in an interview with The Journal. We had speculated ahead of the September 10 rate announcement that the bank was preparing the markets for a change in policy after the asset-buying scheme largely failed to affect lending to the real economy. Indeed, although King has said that the BOE was “beginning to see its impact on the supply of broad money,” the M4 measure of money stock grew at an annual pace of just 12.6% in August, the slowest in a year, while central bank’s own data showed net lending shrank for the first time in at least 16 years in July. While a policy shift had not materialized at that point, the BOE has not let up on hinting that more, not less, monetary easing is ahead despite the recent uptick in leading economic indicators, creating the distinct possibility for a dovish surprise this time around.
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