Naeem Aslam
Zaye Capital Markets
Forex
Sterling has resumed its decline once again while the IMF is putting pressure on the UK that it needs to re-evaluate its tax structure. The fact that the IMF has been involved this closely with the UK has made the matter a lot worse. The UK is not an emerging economy where the IMF can dictate its terms, but the fact that now the IMF has started to see the UK as one of the emerging economies has made the situation a lot direr.
Traders believe that an unexpected announcement is highly likely going to come from the Bank of England, and it could take place even over the weekend if not before. This is because the scheduled meeting by the BOE is actually going to be on November 3rd, and if the BOE leaves things until then to make an announcement about its monetary policy, the Sterling will be even more shredded into pieces.
With the dollar index picking a lot of steam, the situation is only becoming worse for the Sterling as the UK’s borrowing cost is surging. So far, the BOE has pushed back to accept the terms set by the market. The Governor of the Bank of England made it clear on Monday that the Bank will make a full assessment of the situation during its next meeting, and that is in November. We believe that the Bank doesn’t really have that luxury, and it can continue to push back any expectations that it wants, but that would only make the situation even worse.
A full percentage point interest rate hike is very much baked into the price, and that is the only reason alone that pushed the price of the Sterling higher from its lows that it formed earlier this week. If the BOE continues to delay its decision or underdelivers, we could see a type of blood bath for the Sterling that we may not have seen evermore. There is no doubt that the type of situation of the Bank of England right now is far from ideal because if it actually lifts the interest rate by a full percentage point, it risks tipping the UK’s housing market further into a deep recession. This means that we will see a serious correction in the UK’s market housing market, and consumers will find it incredibly difficult for themselves to pull them out.
The information is purely for education purposes only and cannot be perceived as an advise.
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