Broadbent and Forbes Prompt Fresh GBP Weakness

Above: BoE Deputy Governor Ben Broadbent helped peg GBP a notch lower ahead of the weekend.

UPDATE: The pound dollar exchange rate has crashed lower by near-on a percent following a better-than expected US non-farm payroll release. Read the story here.

The British pound (GBP) has been hit by comments coming from key decision makers at the Bank of England who have cast doubt on the prospects of an interest rate rise happening in early 2015.

Markets have long been expecting the interest rate rise to come at the start of the new year and if this is not to be the case then interest rate expectations must correct lower dragging down sterling with them.

As we head into the weekend we note selling pressure has eased:

• The British pound to euro conversion is 0.17 pct higher on a day-to-day basis; the exchange rate is at 1.2768.
• The pound to dollar conversion is 0.94 pct lower; the exchange rate is at 1.5994.
• The pound to Australian dollar conversion is 0.30 pct higher; the exchange rate is at 1.8395.

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Why the Pound Sterling Has Fallen Against the Dollar

Stronger US dollar moves aside, it appears comments from decision makers at the Bank of England are also to blame for some of the weakness being witnessed in GBP at the current time.

Ben Broadbent:

BoE deputy governor Ben Broadbent said today in an interview that the UK economy, although already quite strong and on the path to normalisation, still wasn't ready for a rate increase.

Broadbent said: "There is still no evidence that low rates are breeding higher risk."

Nevertheless, he warned businesses and consumers they should be prepared for the tightening cycle and should, "think prudently about how much debt to take on".

Kirstin Forbes:

Kristin Forbes, an incoming member of the Bank's Monetary Policy Committee has added further GBP-negative comment.

Forbes has given an insightful speech into the impact the strong pound exchange rate has had on the UK economy and, importantly, future impacts.

It would seem that we are yet to fully feel the deflationary impact the strong GBP has had on prices.

As we know, fighting deflation is a major policy issue across the developed whorl at the moment; and particularly so in the Eurozone.

Markets sold the pound because they reckon if inflation continues to fall, as surmised by Forbes, then the need for interest rate rises fall.

"The sterling exchange rate appreciated by 14.5% between March 2013 and July 2014. 'The effects of exchange rate movements generally take a substantial amount of time to play out’ and therefore this appreciation will continue to have powerful effects on the economy over the next few quarters," says Forbes.