Sterling Torpedoed by Haldane's Interest Rate Cut Talk

The British pound (GBP) remains under sustained selling pressure following news that the Bank of England could actually cut the base interest rate to 0%.

This is the very same Andrew Haldane who in late January said the MPC was leaning towards raising interest rates.

Up until now the discussion on interest rates has been almost exclusively focussed on when they are raised from record lows.

Talk of the first rate rise being pushed back to 2016 has seen sterling come under pressure over recent days.

If the discussion were to shift to actually cutting rates further we would expect a significant crash lower in the GBP exchange rate complex.

Movement towards such discussion is exactly what we are seeing on Thursday the 19th of March.

In the wake of the rate cut talk the pound to dollar is trading heavy at 1.4756 while the pound to euro exchange rate continues its poor run.

The rate remains on course for a break below the 1.28 GBPEUR zone.

What has the Bank of England Said Exactly?

According to Andy Scott at foreign currency specialists, HiFX, sterling was sent tumbling again today following comments from the Bank of England’s chief economist.

Andrew Haldane (pictured) said that the Bank of England needed to be ready to cut interest rates if necessary to meet its two percent inflation target.

“Yesterday’s slightly more dovish minutes from the Bank’s meeting this month contained no reference to a previous discussion around the potential need to cut interest rates, so today’s comments come as quite a surprise,” says Scott.

Haldane stressed that the remarks represent his own view, rather than that of the MPC as a whole.

This is the very same Andrew Haldane who in late January said the MPC was leaning towards raising interest rates. This should go some way in highlighting just how fickle commentary out of the Bank can be.

We see this as a clear-cut case of the Bank talking down sterling and UK gilt yields.

Could this under-cover warfare against the strength of the British pound become more regular?

Scott says Haldane’s words carry additional significance in light of the fact that several central banks have cut rates recently due to falling inflation.

“Whilst our view remains that rates will be kept on hold this year and likely increased next year, the global trend of slowing price rises, or in some cases falling prices, is something to keep an eye on,” says Scott.

Monetary policy is driving heightened levels of volatility in the FX markets and today’s comments saw sterling fall by 0.5% against both the dollar and the euro.