Currency news - Bank of England highlights uncertainty

Bank of England highlights uncertainty - 29-11-07

Sterling weakened to below 2.06 against the dollar on Wednesday before strengthening rapidly to 2.08. Volatility remained high on Thursday with a retreat back to near 2.06 while the correction against the Euro stalled.

Sterling gained some support from a general recovery in risk appetite and sustained buying interest in carry-trade currencies even though there was further upward pressure on UK inter-bank rates which indicated underlying stresses. Mortgage approvals fell to 88,000 in October from 100,000 the previous month while net consumer lending fell to GBP8.8bn from GBP10.8bn. The data will reinforce expectations of a significant slowdown in the economy and maintain pressure for lower interest rates.

The comments from Bank of England officials will continue to be watched very closely on Thursday. Any suggestion of a December rate cut by key officials would tend to undermine the UK currency. Blanchflower called for a cut in rates, but he also voted for a cut in November. Bank Governor King stated that the outlook was highly uncertain while credit conditions had tightened, although the impact outside the financial sector had still been limited. The December decision is likely to be a close call.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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