The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.4445 level and was supported around the $1.4155 level. Most traders believe Bank of England’s Monetary Policy Committee will reduce interest rates by 50bps on Thursday to 1.0%. The big question on traders’ minds is how far below 1.0% U.K. interest rates may decline. There is currently about 300bps of monetary stimulus in the pipeline along with the recent significant depreciation in sterling and these factors could ease the pace with which BoE’s MPC reduces interest rates in the future. Traders are also paying close attention to any indication that Bank of England is closer to instituting quantitative easing. The central bank reported 32 different financial institutions borrowed ₤185 billion under the BoE’s special liquidity scheme. Data released in the U.K. today saw the CIPS construction PMI index rose to 34.5 from 29.3 in December. Chancellor Darling verbally intervened today saying We've seen extraordinary volatility in markets generally and in the currency markets in the last few months. This (volatility) will warrant a good discussion at the Group of Seven because everyone is concerned about this. Cable offers are cited around the $1.4720 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9080 level and was supported around the ₤0.8990 level.
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