Pound Sterling, free falling after BoE’s Inflation Report

[RTFX-Trading]

The BoE sent a message similar to the ECB and the Fed last week, highlighting the downside risk to growth and the upside to inflation. BoE said “Housing market is weaker and credit supply conditions are tightened by more than was assumed in May”. GDP is seen by BoE as “Broadly flat over the next year or so”. Forecast shows inflation below 2 percent in 2 years which strongly supports expectations that the rate cut could come sooner than expected.

But the market immediately took this as a done deal despite the report that suggests inflation will eventually be on target. Sterling slides below 1.8900 after the report. The market sentiments indicate that the MPC will eventually cave in to the need to cut rates to reset the collapsing economy.

Cable is down under 1.8800 for the first time since October 2006 which assists the greenback broadly. USD is again gaining against the single currency at 1.4863 and is recovering against the yen.