Crunch day today for British pound

Financial and commodity markets analytics

The British pound is remaining well supported in today’s trading session after a sizable jump in business optimism and employment numbers reduced market expectations of a rate cut by the Bank of England at next week’s rate meeting.

Chances of a rate reduction have now fallen to around 50 percent, down from 70 percent after the latest CBI quarterly Business Optimism survey read which hit the market at 23 and was a huge jump from the previous month’s figure of minus 44.

The jump in confidence is likely connected to expectations that the Brexit debarcle is finally behind the UK and the economy is now in a position to power ahead.

"The monthly survey does not usually generate much interest, let alone much movement, but this one caught investors' imagination. It showed a major swing from pessimism to optimism; the biggest since the survey began in 1958," says Lee McDarby, analyst at MoneyCorp.

The focus is now on Today’s PMI data as it may be the deciding factor if the Bank Of England will slash rates next week, or whether they will need to await further evidence of the British economy’s performance following December’s General Election. If a rate hike is delayed the British pound is expected to receive a significant boost.

If the number falls below market expectations the British currency is likely to see significant falls as it will probably force the BOE to cut rates which some say may be better for the economy in the long run as it will spur economic growth.

"Sterling popped to two-week highs as the odds of a local rate cut next week slipped below 50% from as high as 70% in recent days," says Joe Manimbo, analyst at Western Union.

"Watch those Friday numbers on U.K. manufacturing and services growth which will be the next to influence the fluid rate debate." he added.


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