British Pound Fails to Rally Despite Inflationary Pressures
The British pound’s failure to rally on the stronger than expected consumer price report is a testament to the market’s bearishness towards the pound.
Inflation is rampant and it will continue to prevent the central bank from aggressively easing monetary policy. The Bank of England’s Quarterly Inflation report is due for release tomorrow and we expect the central bank to recognize the tough decision that they have at hand. Most likely they will tell the markets that they have no choice but to defer rate cuts. This may conflict with the employment report which is due an hour before the inflation report. London has been hit particularly hard by the financial market turmoil, forcing many investment banks to announce layoffs. The employment components of the service and construction sector PMI reports also declined, confirming our belief that the labor market in the UK has weakened. Soft numbers could offset any bullishness that may come from the Quarterly Inflation Report.