Update - The Bank of England has cut interest rates by 1.50% to 3.00%
Sterling may look to rally following Thursday’s Bank of England interest rate decision with a sizeable reduction likely, but volatility will remain a key short-term feature
The UK currency found support near 1.56 against the dollar on Tuesday and then secured a significant advance as the US currency stumbled. Sterling was unable to sustain a move above 1.60 and dipped to lows beyond 0.81 against the Euro.
Thursday’s Bank of England interest rate decision will be a key focus with markets confident that there will be a cut if at least 0.50% and there will be further speculation of a reduction of as much as 1.0% to 3.5%, which would diminish UK yield support. A sharp cut could, however, be received favourably on hopes that a deep recession could be avoided. In this environment, high volatility will persist with Sterling just below1.58 against the dollar on Wednesday.
The UK PMI index for the services sector weakened to an all-time low of 42.4 in October from 46.0 the previous month. Industrial production also continued to fall with a 0.8% monthly decline in manufacturing, increasing pressure for a sharp Bank of England rate cut and Sterling retreated again following the data.
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