The Bank of England decided to stay the course today by leaving their benchmark interest rate unchanged and continuing with their rate of easing.Don’t miss our next trade idea. Get on the Bear Traps Report Today, click here
As we stressed in a macro note out to clients, the Bank of England does not have the fire power to deal with the Pound’s move lower, based off of Brexit concerns. This is why we issued our long term negative view of the Pound against the U.S. Dollar. Where do we think the Pound is going?Don’t miss our next trade idea. Get on the Bear Traps Report Today, click here
Pound Side Effects
Many central banks around the world have been trying to muster up ways to increase inflation. The answer is simple, run a large current account deficit (imports being more than exports) so when your currency weakens, costs in the country surge. This is what the UK is facing.
In their August the meeting, the Bank of England had a large bias to do further easing by cutting the benchmark interest rate. With inflation on the rise and growth factors improved, the Bank of England has switched to a “neutral” perspective on interest rates.
Inflation is on the Rise
It did not take long for market estimates to adjust to the weakening pound. Inflation expectations have been surging and do not look to be leveling off. The market knows the Bank of England has limited options with regard to strengthening the currency, so a hard Brexit will further import cost increases as the Pound will continue its descent.Don’t miss our next trade idea. Get on the Bear Traps Report Today, click here