England’s Central Bank Cuts Rates, GBP Headed Above 1.55?

As you may now, the Bank of England cut interest rates by 50bp to 1.50 percent, an all time record low for the 300 year old central bank.

What I found most interesting about the BoE Monetary Policy Statement is the credit that they are giving to the weak sterling.

“But the substantial depreciation in sterling over recent months may help to moderate the impact on UK net exports of the slowdown in global growth.”

This is one of the arguments that I gave in my 2009 British Pound Outlook about why we expect the UK to be one of the first countries to recovery from the global economic downturn.

As for further rate cuts from the central bank, more is likely given the pessimistic tone of the BoE statement. Inflation is also expected to ease sharply.

However the GBP/USD has broken above the 50-day SMA and entered our buy zone as the rate cut confirms the aggressiveness of the central bank. As long as the currency pair remains above 1.4245 on a closing basis, we could see a move to 1.5585.