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British Pound’s Risk Correlations May Not Weather the BoE’s Rate Decision


There was little contribution from the UK docket today; yet the British pound would end the week at the most critical level against its US counterpart. Looking ahead to next week though, the situation will be reversed. The domestic calendar will be overflowing and its piece de resistance will be a central bank announcement that holds the greatest potential for making a significant impact on price action. Like the ECB and RBA announcements, the MPC is not expected to change its benchmark rate. On the other hand, there is a very good chance that the group could alter its stance on policy and/or its outlook for the economy. The chief concern from the statement that follows the holding of the overnight lending rate at 0.50 percent is any possible changes to the bond purchasing program. The BoE is already working to purchase 125 billion pounds worth of debt; but the government has allowed for 150 billion. If they in fact increased it to this limit, it may be construed as prudent after the extended recession in last week’s GDP numbers. Holding back, on the other hand, may be seen as reckless and hurt its correlation to risk

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