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What's Weighing On The Pound? Could It Be...The Bank of England?

Wednesday, 16 Feb 2011 | 5:15 PM ET
British Pound
Adam Gault | Digital Vision | Getty Images
British Pound

The British pound had a rough day today, trading down against the dollar and the euro, and these analysts aren't expecting a significant upturn any time soon.

When Mervyn King, governor of the Bank of England, indicated today that he was keeping his options open on interest rate hikes despite the above-target inflation reported yesterday, the pound quickly sold off against other major currencies. The market had been expecting a near-term rate hike and "got ahead of itself," said Amelia Bourdeau, senior G10 FX strategist for the Americas at UBS.

"King was actually not less hawkish than usual," she told me. "He was just the same and people were expecting more." Bourdeau told me the outlook for the pound now depends on how real economic-growth data comes in.

David Song, currency analyst at dailyfx.com, expects the Bank of England to maintain a wait-and-see strategy through the first half of 2011, and the pound to do pretty much the same thing.

Does it make sense to buy the pound at current levels? These analysts are expecting an upturn once investors believe a rate hike is near—but that may not be for a while. And Bourdeau pointed out that some traders are expecting some slippage from the pound's current "relatively low state" before it moves up.

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