After a surprisingly negative statement made today by the Bank of England, the United Kingdom witnessed a sharp decline for the pound versus most of the 6 major traded currencies globally, as it indicates that the British Isles remain struggling to revive their economy.
The pound declined versus the greenback today and reached the lowest rate in 3 months versus the euro after Bank of England Governor Mervyn King affirmed that rates to hold reserves in the central bank may be lowered, affecting drastically the pound’s outlook as its attractiveness declined instantly, since investors choose their asset positions based on yield in most of the cases. The pound was rallying earlier as the real estate market showed signs of stabilization through a report that indicated a rise in house prices in U.K., but after BOE declarations, earlier gains were pared and the British currency declined immediately.
After positive news coming from the Bank of England last week affirming that the asset-purchasing program would not be extended, improving confidence for traders to bet on the pound, a negative sentiment reappeared once again, as a cut in rates for holding reserves affect severely a currency’s outlook. Analysts forecast a rather nebulous short-term for the British currency, and other options regionally, like the euro, are to be considered for the moment.
GBP/USD fell to 1.6485 as of 11:00 GMT after being traded at 1.6619 hours earlier, before Bank of England’s statement. EUR/GBP climbed to 0.8861 from 0.8786.
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