For the past few weeks the British pound has been trading in a range against both the Euro and US dollar. This is primarily due to the fact that the market hasn’t quite figured out what the Bank of England will do next and when.
Earlier this week, the letter written by BoE Governor King to Chancellor Darling was surprisingly dovish and provided little information on how they plan on tackling rising inflationary pressures. The release of the minutes from the most recent monetary policy also did not help. According to the BoE minutes, 8 out of the 9 members voted to keep interest rates unchanged while the one dissenter, who is the perennial dove (David Blanchflower) voted for a rate cut. The monetary policy committee discussed everything under the sun including a rate hike and a rate cut. They haven’t decided what to do with interest rates and as a result, the market doesn’t’ know what to do with the British pound. Retail sales are due for release tomorrow and unfortunately a strong or weak report may not help make up the central bank’s mind. The rise in the BRC retail sales report suggests that consumer spending will be strong.