British Pound Lags Ahead of BOE Rate Decision on Thursday - What to Watch For

The British pound slumped versus most of its major counterparts, despite the fact that for the first time since the summer of 2008, the Bank of England is expected to leave rates unchanged on Thursday. Indeed, both Credit Suisse overnight index swaps and a Bloomberg News poll of economists reflect forecasts that the BOE will leave the Bank Rate at an all-time low of 0.50 percent at 7:00 ET on Thursday. A look at their March 5 policy statement shows that the BOE’s Monetary Policy Committee (MPC) expects both growth and inflation to fall lower in coming months and also announced a new 75 billion pound asset purchase program, which included the buying of medium and long-term gilts. Ultimately, how the British pound responds will likely depend on two factors: whether or not the BOE asserts that they want to avoid cutting the Bank Rate to zero, and whether or not they indicate that they want to expand their quantitative easing (QE) efforts. Signs that the BOE is open to reducing rates further or signs that they will increase their gilt purchases could weigh heavily on the British pound, especially against the euro, while the opposite (steady rates, no QE expansion) could provide a boost to the UK’s currency and lead EUR/GBP back below 0.9000.