A tumultuous week for financial markets left the highly risk-sensitive British Pound sharply lower through Friday’s close, and major Bank of England monetary policy decisions further hurt outlook for the downtrodden currency. The BoE moved closer to the near-zero percent interest rate policy of its US counterpart, slashing overnight targets by a full 50 basis points to 0.50 percent.
British Pound Outlook Worsens on BoE Cuts, Quantitative Easing
Fundamental Outlook for British Pound: Bearish
- British Pound drops as Bank of England announces Quantitative Easing
- GBP/USD Nonetheless Continues to hold Major Support Levels
- UK Government Reportedly takes 75 Percent Stake in Lloyds
- View our Monthly British Pound – US Dollar Exchange Rate Forecast
A tumultuous week for financial markets left the highly risk-sensitive British Pound sharply lower through Friday’s close, and major Bank of England monetary policy decisions further hurt outlook for the downtrodden currency. The BoE moved closer to the near-zero percent interest rate policy of its US counterpart, slashing overnight targets by a full 50 basis points to 0.50 percent. Central bankers likewise moved to increase money supply by effectively printing money via “Quantitative Easing”. The announcement had little short-term effect on the British Pound, but it is important to highlight the potential for GBP depreciation through a pickup in inflationary pressures.
Fundamental outlook for the British Pound remains fairly bleak. Economists widely predict that the British economy will continue to be one of the worst affected by the ongoing global financial crisis. Such sentiment effectively limits external demand for British Pounds, and the crisis in confidence for UK financial markets likewise removes a key pillar of GBP support. Just this past weekend, the UK government reportedly took a 75 percent stake in Lloyds Banking Group. A hodge-podge of financial market intervention and the fourth-such major nationalization hardly bodes well for jittery investors. We would expect the highly risk-sensitive British Pound to continue to languish under such poor financial market conditions.
The week ahead promises little in the way of foreseeable event risk, but it will be critical to monitor overall risk trends in global financial markets. For the time being, the British Pound continues to decline against its US counterpart through times of market distress. Absent a shift in dynamic, we would expect the GBP/USD to continue moving off of the US S&P 500, the FTSE 100, and other key risk barometers. - DR
