Pound Sterling GBP Forecast Deteriorates Rapidly Following Bank of England Commentary

Published: Friday, 6 November 2015 08:30 BST - Written by Minesh Chaudhari

STORY LINK Pound Sterling GBP Forecast Deteriorates Rapidly Following Bank of England Commentary

GBP to EUR Conversion Rate Hit Low of 1.3968 Yesterday

The Pound Sterling (currency : GBP) took a hammering in the markets during yesterday’s session; the Pound euro exchange rate had touched off the 1.4200 level during early trade but by the latter stages of the North American equities session had traded down to as low as 1.3968 GBP EUR.

There was one culprit and one culprit only responsible for Sterling’s demise – the Bank of England (BoE). As had been almost universally anticipated by analysts, the Old Lady of Threadneedle Street’s monetary policy committee decided to leave the cost of borrowing on hold at its current record low level of 0.5%, and there was no alteration to the £375bn currently allocated to its controversial Quantitative Easing programme.

British Pound Cools on Dovish Carney Speech

However, there was certainly an alteration to the tone of the Bank’s comments regarding the potential timing of UK rate ‘lift-off’.

As recently as last June, BoE Governor Mark Carney suggested that UK interest rates would be on the way Northwards towards the ‘turn of the year’, but the BoE Chief convincingly changed his tune during yesterday’s press conference, stating only that it was now ‘relatively prudent’ for investors to price-in a British rate hike before the end of next year.

This change of tack, in combination with a lowering of medium term UK GDP growth and inflation targets, was bad enough.

The downside for Sterling was increased by the BoE’s assertion that, ‘the outlook for global growth has weakened since August,’ and its observation that the pace of expansion in emerging markets had, ‘slowed markedly,’ during the last three months.

Pound Overvaluation Weighs on UK Economic Growth, Bleak Short-Term Sterling Outlook

The BoE’s assertion that the Pound’s recent bout of relative strength poses another problem for Britain’s tentative recovery is forecast to provide further near-term headwinds for the UK unit.

The BoE’s inflation report noted gloomily that, ‘the dampening influencing of Sterling’s past appreciation on inflation is expected to be persistent diminishing only slowly over the MPC’s forecast period.’

The short-to-medium term prospects for Sterling now appear bleak.

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TAGS: Pound Euro Forecasts Pound Sterling Forecasts