The British pound is on its way to hitting a 25 year high despite the discovery of terrorist plots in London and the deterioration in consumer confidence. The resilience of the British pound is a clear sign that traders of the currency are focused on one thing and that is yield.
The Bank of England will be announcing its interest rates decision next week and after the hawkish minutes from the last monetary policy meeting, the markets fully expect another 25bp rate hike. This would bring the yield up to 5.75 percent, widening the gap between US and UK interest rates in the process. When the central bank changes rates, a statement is released which means that not only will the actual interest rate change matter, but so will the tone of the BoE?s statement.