British Pound Rockets Higher on Demand for Yield

Despite the softer-than-expected inflation figures we saw last week, traders are increasingly feeling assured that the Bank of England has no intention of cutting rates in the near-term, especially as Q3 expansion was much better than expected at an annual rate of 3.3 percent. However, past performance is rarely indicative of future results, and GDP figures are no different. The CBI industrial trends survey unexpectedly dropped to an index reading of -6 led by weaker exports, suggesting that the strong British pound is weighing on foreign demand. With domestic demand likely to wane in the face of higher interest rates and exporters impacted by the appreciation of Cable, Q4 GDP may not be as resilient as in previous quarters.