Rates aren’t expected to change
Weakness in the pound will give some respite to the BoE (Bank of England) ahead of its monetary policy review on January 13, 2016. The sluggish inflation rate in the United Kingdom is still a concern for the BoE. Prices only rose by 0.1% in November after two consecutive months of deflation in the economy. The BoE’s MPC (Monetary Policy Committee) is expected to maintain the benchmark interest rate at 0.5%. The QE (quantitative easing) program is estimated to remain unchanged at 375 billion pounds. The delay in a rate hike this year and the Brexit referendum had a negative impact on the value of the British pound.
Continuous fall in crude prices
Falling global crude prices added to the negative sentiment hovering over the pound. Nervous investors gather short positions on volatile equity markets. Since the beginning of the year, crude prices fell by more than 18%. This put pressure on currencies with a high correlation to oil prices like the Russian ruble, Brazilian real, and the Norwegian krone. OPEC’s (Organization of the Petroleum Exporting Countries) higher supply and China’s lower economic forecasts have been weighing on crude oil prices.
Impact on the market
The First Trust United Kingdom AlphaDEX ETF (FKU) fell by 1.0% on January 12, 2016.
British ADRs (American depositary receipts) ended on a negative note. Rio Tinto (RIO) ended lower by 4.9%. Banking ADRs were on a negative trajectory. HSBC Holdings (HSBC) fell by 0.19% while Barclays (BCS) fell by 0.85%. The Royal Bank of Scotland Group (RBS) also posted losses of 0.85%.