British Pound vs. US Dollar

British Pound vs. US Dollar

The British Pound is back at fresh four-year highs against the US dollar, which could be a negative development as far as the Bank of England (BoE) is concerned. GDP is trending higher (very slowly) but CPI growth is slowing rapidly, possibly signaling that the deflationary environment in the Eurozone is spilling over the English Channel. Less than three years ago, CPI was puzzling the BoE as it climbed above 5% Y/Y fueled by rising energy prices and monetary stimulus. However, monetary stimulus from the central bank has slowed, energy prices have fallen and CPI growth is now down to 1.6%. Slowing prices creates higher real interest rates, which is likely why the British currency has been so strong.

(Source: GBI)