The Pound continued its slide against the Dollar yesterday and also remained under pressure versus the Euro following the release of the minutes from the Bank of England’s last policy meeting, which showed that the MPC was again split three ways on UK interest rates.
The Governor of the BoE, Mervyn King, along with six other members of the Monetary Policy Committee voted to keep interest rates on hold at 5.0% in August with Timothy Besley again arguing for a “pre-emptive” increase and David Blanchflower favouring a cut to prevent a recession.
The result of the two day meeting was the same as the previous month but the Bank of England has since cut UK growth forecasts while Timothy Besley has said that inflationary pressures will ease over the next year as consumer prices fall sharply lower.
In a statement last week, King also said that the economy faces a “difficult and painful adjustment” over the coming months with growth heading for its first contraction since the early 1990s while inflation has accelerated to more than double the Bank’s target over the past month.
In the aftermath of the minutes, the Pound fell back below 1.8600 versus the Dollar and close to the lowest level in nearly two years as the accompanying statement showed that policy makers had judged that inflation risks “ probably eased a little” over the past month.
The UK currency also fell for a third consecutive day against the Euro as a separate industry report showed that factory orders slumped to the lowest level in five months while traders increased bets of a rate cut as the economy drifts closer towards a recession.
The Euro again took advantage of broad Sterling weakness yesterday but the single currency fell close to a six month low against the Dollar amid reports that Germany’s economic outlook deteriorated in the third quarter.
The German Economy Ministry said yesterday that the outlook for growth has slumped beyond even the second quarter numbers when gross domestic product shrank for the first time in four years.
The Euro has fallen 8% in value against the Dollar this month and the market has been waiting for an aggressive correction that has so far failed to materialise as the pessimism surrounding the outlook for Europe has led to speculation that the Dollar will continue its momentum.
Data Released 21st August
U.K 09:30 Retail Sales (July)
EU 09:00 Flash Composite PMI (August)
- Manufacturing PMI
- Services PMI
U.S 13:30 Initial Jobless Claims (w/e 16th August)
U.S 15:00 Leading Indicators (July)
U.S 15:00 Philly Fed Index (August)
written by Adam Solomon
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