Pound May See Further Losses

The British pound has steadied in today’s trading session after last week’s plunge following the latest rate decision from the Bank of England and the question on everybody’s mind is where to now for the British currency?

Last week, Markit services PMI figures from the UK which hit the market at 55.3 against analysts’ expectations for a figure of 53.3 seems to have stopped the pound from sliding further. Any number above 50 shows the sector in growth mode.

The BOE rose interest rates by 0.25 basis points to 0.50 percent which was widely predicted by the market but the following statement caught investors off guard as it was one of the most dovish forecasts on record.

BOE board members noted that any further rate hikes would be “gradual and to a limited extent” which left traders fleeing the pound as they expected something different.

Another rate hike was expected in February but that seems all but gone and now the assumption is the next hike at best will come towards the end of next year.

Some analysts are even predicting that the BOE will not have to lift rates any further and when investors start to buy into this rumor the pound may see further losses.

“The sharp deterioration in the Pound has been a classic case of ‘buy the rumor, sell the fact’, coming just a week after we saw a similar thing for the ECB meeting,” said Joshua Mahony at IG in London.

“Despite the fact that 7 of the 9 MPC members decided to raise rates, there is a good chance that this is essential ‘one and done’,” he added.

The British pound is trading at 1.3136, down 0.27% in a bearish momentum.

This article was written by FIBO Group analyst Andrew Masters.