The British pound continued to sell off despite an improvement in service sector PMI.The UK economy is weak, but it is encouraging that manufacturing, construction and service sector PMI all improved in the month of August.This suggests that even though growth is continuing to contract, the pace of deterioration may be slowing.
Consumer confidence remains at a 4 year low, but the recent decline in the British pound and the drop in oil prices should help to boost growth.The 12 percent decline in the British pound has put UK firms on a fire sale.We expect M&A activity to pick up, which could help to temporarily stabilize the currency.
The Bank of England is expected to leave interest rates unchanged at 5.00 percent.With the economy slowing and inflationary pressures easing, the next move by the central bank should be a rate cut.The market is currently pricing in 75bp of easing over the next 12 months and because of that, we still expect the GBP/USD to break 1.75.Usually when the BoE leaves rates unchanged, no statement is released, which mean that the action should be in the EUR/USD tomorrow on the heels of Trichet's press conference.
The Bank of England is expected to leave interest rates unchanged at 5.00 percent.With the economy slowing and inflationary pressures easing, the next move by the central bank should be a rate cut.The market is currently pricing in 75bp of easing over the next 12 months and because of that, we still expect the GBP/USD to break 1.75.Usually when the BoE leaves rates unchanged, no statement is released, which mean that the action should be in the EUR/USD tomorrow on the heels of Trichet's press conference.
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