Pound Approaches Multi-Year Lows Amid Rising Rate Cut Speculation

Andamento del mercato - 11/07/2016

Although the Pound is rebounding modestly versus the dollar after plunging early during the European session, the stage is set for significant losses in the pair as uncertainty looms over the economy and monetary policy.  The upcoming UK interest decision due later this week from the Monetary Policy Committee has some market participants anticipating the key rate to be slashed by 25 basis points as the Bank of England reacts to the fallout from the decision to “leave” the European Union.  With the property market starting to crumble and abundant forecasts of reduced economic activity across the nation in the wake of more hesitant investment, Bank of England Governor Mark Carney has had to act quickly to reassure financial markets, starting with his pledge of 250 billion GBP in liquidity for the financial system.  However, outside these measures, fiscal policy remains scarce considering the ongoing tumult in the UK government.

With Prime Minister David Cameron stepping down in a few months while other major leaders including Conservative Boris Johnson and former UKIP leader Nigel Farage stepping aside, the UK government is in a state of disarray, preventing more substantive fiscal stimulus to help boost the economy.  While policy action would help assuage financial markets that are increasingly volatile, the only action so far that has been taken to increase competitiveness is Chancellor of the Exchequer George Osborne’s move to reduce corporate taxes from the current 20.00% to a more favorable 15.00% in an effort encourage businesses to move to the UK.  Nevertheless, this policy is a longer-term measure and does little to help the UK economy in the interim, leaving it to BoE Governor Mark Carney to guide markets with a firm hand.  Considering the rising expectations of greater accommodation from the Central Bank, GBPUSD is poised to continue falling in-line with monetary policy adjustments.


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