Sterling once again on the back foot | Bank of England dilemma does not help

The outcome for the currency of what has become known in Forex trading circles as the Bank of England’s ‘Super Thursday’ collection of events, when not only the Bank Rate decision and the Asset Purchase Facility, together with the minutes of the meeting just concluded, but also the Quarterly Inflation Report and a speech and press conference by the Governor, Mark Carney, all occur on the same day, was decidedly bad for the pound Sterling on the second last day of last week.  

There can be no doubt about it, particularly in light of the Governor’s speech, that any rise in interest rates in the UK are some way off. Inflation, that strong driver of interest rate expectations, has dipped into negative territory and could even still be in decline. The BoE is more prone to focus on core inflation (the rate that excludes energy and food) than its counterpart in the Eurozone, but even this is now standing at little more than half the target level.

As can be seen from the chart above, cable, as the GBPUSD pair is known, fell strongly after last Thursday’s events. There is little on the horizon to make it change that stance in the coming weeks and months.

Bank of England dilemma

The dilemma referred to here is the perception by Bank of England policy makers that it must balance a robust domestic economic situation (Employment and wages are strong, retail sales and GDP are growing) with a global one that is, in their estimation, bad and getting worse. Emerging markets, for which read China, are a particular cause for concern, as is the worldwide tendency for commodities of all sorts, but especially oil, to be weak.

This morning (Tuesday Nov 10^th) sees a report in the Guardian indicating lower than expected inflation in China in an announcement just issued by the Chinese National Bureau of Statistics.

The governor did not mention the elephant in the room, but it is still there: The undertaking made by the current government that it will give an opportunity to the people of Great Britain to withdraw from the EU, pending its attempts at reform of that great heterogeneous structure, and all the economic implications that this course of action holds.