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Pound Drops After Inflation Report

February 14, 2013 at 2:43 by Vladimir Vyun

Focus on 5-pound noteThe Great Britain pound fell after the Inflation Report of the Bank of England. Additionally, the BoE Governor Mervyn King suggested that the economy will likely remain weak and will face “big challenges”.

King indicated that policy makers are not shy with pushing quantitative easing:

If necessary, we will do more. We must recognize, however, that there are limits to what can be achieved via general monetary stimulus — in any form — on its own. Monetary policy works, at least in part, by providing incentives to households and businesses to bring forward spending from the future to the present.

The BoE in its Inflation Report revised the growth forecast for this year from 2 percent to 1.7 percent. It also said that inflation may peak above the bank’s target, but that will not make the BoE to increase interest rates for combating rising prices:

As long as domestic cost and price pressures remained consistent with inflation returning to the target in the medium term, it was appropriate to look through the temporary, albeit protracted, period of above-target inflation. Attempting to bring inflation back to the target sooner by removing the current policy stimulus more quickly than currently anticipated by financial markets would risk derailing the recovery and undershooting the inflation target in the medium term.

GBP/USD traded at 1.5539 as of 2:43 GMT today after falling from 1.5538 to 1.5522 — the lowest rate since August 3. EUR/GBP went up from 0.8586 to 0.8652 yesterday and remained near that level today, while GBP/JPY traded at 145.28 after falling from 146.38 to 145.11 yesterday.

If you have any questions, comments or opinions regarding the Great Britain Pound, feel free to post them using the commentary form below.

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