The Pound took a thrashing during yesterday's trading as comments by the Bank of England sank the British currency. A report surfaced that Bank of England (BOE) Governor Mervyn King stated a weaker Pound could be beneficial to the U.K. economic recovery. It is assumed the BOE prefers a weak Pound. The weaker currency could help boost British exports, making them relatively cheaper than their foreign counterparts.
Traders immediately began bidding the Pound lower, sinking the GBP/USD to 1.5947 from 1.6353, for a single day decline of 2.5%. The EUR also rose 2% on the Pound as the EUR/GBP ended at 0.9816 from 0.9004, and the GBP/AUD fell to 1.8467 from 1.8803.
If the BOE does prefer the Pound to depreciate, this could create an opportunity for those traders who feel the British currency is not properly valued. Perhaps the BOE sees the possibility for further weakening of the Pound. Will the bank take future action to help artificially deflate the nation's currency?