The rebound in the British pound today is unconvincing since the currency failed to hold onto its intraday gains against the US dollar.
According to HBOS PLC, house prices increased unexpectedly in the month of December. Although it may be tempting to call this a recovery, it most likely represents nothing more than a corrective bounce within an overall downtrend. Also, the BRC retail sales monitor reported the weakest sales growth in 21 months. Over the next 24 hours, we are expecting the BRC shop price index and leading indicators. For the time being, there is no reason to buy the British pound. The market is still pricing in a 40 percent probability for a 25bp rate cut on Thursday. Even though we do not expect the central bank to lower interest rates, leaving them unchanged may be enough to trigger a short term bounce in the British pound since those traders who have positioned for a rate cut would need to adjust their exposure accordingly.