After two very powerful moves on Thursday and Friday, the strength of the British pound appears to be fading.
Last week, the rally in the pound was largely due to the belief that a February rate cut is not a foregone conclusion. This week however, we face a lot of housing market numbers that could bring the vulnerability of the UK economy back to the forefront. In a speech this morning, BoE member Blanchflower said that interest rates are too restrictive, but if you recall, Blanchflower was the one MPC member that voted in favor of cutting interest rates this month. Therefore his dovish comment is in line with his usual stance on monetary policy and nothing new. Tomorrow we have the CBI Distributive trades survey due for release; weak numbers could tip the pound over. An article in today’s Wall Street Journal questions whether Bank of England Governor King will be able to keep his job in June (Listen to the podcast). He received a lot of criticism for his delayed respond to the credit crunch in August and now he is struggling to restore his credibility. His reappointment could not come at a worse time with the economy slowing and inflation pressures mounting.
