Fundamental Forecast for British Pound

The Pound lagged behind most of its major counterparts in reflecting the shift in risk appetite that began to unfold four weeks ago as speculation about the end of quantitative easing at February’s Bank of England policy meeting took center stage. That meeting has now come and gone, with the BOE coming out of the announcement looking every bit as dovish as before despite its decision to leave asset purchases at £200 billion for the time being. Indeed, the quarterly inflation report that served as the basis for the decision said that “the pace of recovery is somewhat less strong than [previously expected, while] inflation is likely to fall back to below the target” over the medium term despite a likely uptick above 3% in the first quarter as higher oil prices and sterling depreciation feed through. As for QE, central bank chief Mervyn King explicitly said that although the BOE had paused asset purchases, “it is far too soon to conclude that no more purchases will be needed.


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