Pound Sterling Suffers Sustained Attack from Bank of England
- Written by: Gary Howes
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The Bank of England has deliberately sought to devalue the British pound it has been alleged.
The pound witnessed some eye-watering declines on Thursday the 5th, just as many watching the currency markets and hoping for a stronger currency were seeing their wishes granted.
“Super Thursday sent out the doves, as the BoE seemed to target sterling devaluation like never before,” says Joshua Mahony, Market Analyst at IG.
Mahoney says the decision to include reference to the possibility of easing – as well as tightening – was no doubt deliberate, as the BoE aims to ease sterling given the drag a strong pound has upon inflation expectations.
“With the Inflation Report mentioning ‘sterling’ 88 times, there is no doubt the resulting 1% drop in GBPUSD was to some extent manufactured,” says Mahony.
The Bank has certainly shifted its own goal posts regarding interest rate rises with a focus from the domestic agenda to the international agenda, much like the US Fed has done of late.
Much was made of a worsened growth outlook for global growth portray a wider economic environment which is moving in the wrong direction.
“However, with earnings growing by 3%, retail sales rising by the greatest amount since 2013 and unemployment at a seven year low, the BoE’s domestic excuses are gradually dropping out of the picture,” argues Mahony.
The most disturbing aspect of all is the allegation that the Bank of England will only move after the US Federal Reserve has raised rates.
Why bother having a British central bank at all?
With regards to the timing of the interest rate rise it seems that 2017 is not a bad bet.
There has been the reduction in market forward rates between August and November;
“Concurrently, the BoE’s commentary that the eventual rate rise will be gradual, while offering a disclaimer that this is “an expectation, not a promise,” sees the previously hawkish BoE realigning itself with the more dovish market expectations, not the other way around,” says Christopher Vecchio, currency analyst at DailyFX.
