With Indecisive BoE Policy and Renewed Brexit Tensions, British Pound Risks Intensifying Decline Against USD

On Thursday, the Bank of England’s decision to leave the Bank’s Rate at 0.1% was not surprising at all. On the following press conference by Governor of BoE Bailey said the MPC voted unanimously to maintain the pace of corporate bond purchases at £20 billion and voted to keep government bond purchases at £875 billion. Inflation in the United Kingdom is expected to reach approximately 4.5% in November and remain around that level throughout winter. The prices in the country are expected to grow at their most rapid pace in April 2022, Bailey said during a press conference.

As U.S. Fed announced the inception of tapering of its asset purchases during its last FOMC meeting, BoE looks like lagging behind. As a result, the Pound (GBP) has been unable to recoup last week’s losses after a disappointing interest rate decision from the Bank of England (BoE).

GBP/USD pair is trading near $1.3549, up from $1.34489 earlier on Monday morning, underlining the sterling’s impending weakness.

On top of that, the Pound’s sentiment is dented by renewed Brexit tensions after the naval conflict between Britain and France around the demarcation of the fishing waters. Also, Brexit tensions escalated between the UK, Ireland and the European Union. Developments over the weekend reveal that the prospect of a trade war between the UK and the EU has edged closer, as the UK considers triggering article 16 and various officials speculate over possible consequences.

Both the Irish Foreign Minister and Ireland’s European Commissioner have warned that severe repercussions would follow if the UK seeks to prove that serious economic, societal or environmental difficulties have been caused by protocol disputes, in an attempt to override the ‘obstruction of trade flow’ between Great Britain and Northern Ireland.

According to industry leaders, British businesses would be ‘sacrificed’, with ‘a near prohibition on UK food exports’; Ireland’s prime minister warns that such a move would be ‘reckless’ and ‘irresponsible’, with “far-reaching consequences”. Yet British and European officials remain at loggerheads, as Britain is again accused of “deliberately forcing a breakdown in negotiations”, with the ultimate goal of removing the European Court of Justice from the Brexit arbitration process.

Irish foreign minister Simon Coveney has said there’s still time for the UK to reverse the damage, but that the EU feels every time it offers the UK an olive branch, the response of the British is to harden its position. European commissioner Mairead McGuinness confirmed that the European Union’s patience with Britain was wearing thin.

To sum up, there is very little bolster right now for the British currency, so is concerning the situation going forward. The slow downhill trading channel can, therefore, transform into a more precipitous decline in the coming months before Christmas, so that sterling risks finishing 2021 at around 1.40/$ – last seen around June.