British Pound: Will the Bank of England Save the Day?
Over the past 3 trading days, the British pound has rallied over 300 pips on the hope that the Bank of England will come and save the day. The central bank is expected to officially announce a plan that would allow them to take over mortgages from lenders to increase liquidity.
In return they hope that these mortgage lenders will be more willing to extend new loans to potential homeowners. This is the only reason why the British pound is higher because the UK economy faces the same risks as the US. Job losses are continuing to build and many of the layoffs in the financial sector are expected to happen in London. The housing market is also in trouble. According to the UK Times,Morgan Stanley predicts that one in ten homeowners will face negative equity. As house prices continue to fall, the amount of money that homeowners owe on their mortgages could be more than their home is worth. Looking ahead, it will be a very busy week for the British pound with the minutes from the latest monetary policy meeting due for release along with retail sales and GDP. As house prices fall and the labor market deteriorates, consumer spending could suffer.