UK interest rates currently trade at the lowest depths on record. On record means since the BOE began in October 1694 when even then interest rates began trading at 6%. The BOE is in uncharted territory at a 0.25 Bank Rate and explains why the raise, don’t raise conundrum exists on the BOE Board. The BOE doesn’t have ability to raise nor to lower as lower risks negative interest rates. The BOE can’t go negative interest rates because its the home to the largest bond market offerings in the world. Vast majority of nations come to the UK to offer bonds and this is why the UK is “Home to Currency Trading”.
London was always known as the center to raise money for many nations, especially those many nations pegged exchange rates to GBP. Australia and AUD wouldn’t exist today without ability to raise money in London in the late 1800’s and early 1900’s. Australia for many years was once pegged to AUD/GBP and this exchange rate was vital to its existence. Australia was created as a nation due to AUD/GBP and London ability to raise money. Negative interest rates would limit ability for nations to finance monies through nation’s bonds as well as Currency Bonds.
The BOE operational interest rate system is solid and expert as the BOE never revamped nor will ever revamp their interest rate system as most nations accomplished over the past year. A revamp is not needed. What’s needed is the UK’s economic house must to come to order because current interest rates are dangerously low. The BOE is working desperately hard to insert interest rate floors to protect the downside from falling further.
The further BOE conundrum is GBP/JPY must be contained because its most vital to GBP/USD in positive correlations. The last event the BOE wants is to see GBP/JPY lose control then GBP/USD is open game.
While intent focus and writings remains on the BOE board to glean information, the place to watch is the MPC Board that oversees the BOE. The BOE Board is nothing in comparison to the overseer MPC Board’s power to take immediate action.
The vital downside break points for GBP/USD are located at 1.2884 and 1.2887 followed by 1.2942. Above a tough line exists at 1.2957 then 1.3012. The range point is located far above at 1.3123. The BOE remains to contain GBP/USD inside a 1.2300 to 1.2800 range with focus on the upside.
GBP/JPY downside points are located at 145.63 and 145.60. Upside 146.43 must break to target 147.04 and 147.19.