The Bank of England is expected to cut interest rates by 50bp on Thursday to 1.50 percent, an all time record low, yet the British pound is rallying. This bizarre price action stems from the fact that pound traders are looking beyond the rate cut and onto the BoE’s aggressive efforts to revive the [...]

In recent years, the idea of parity seemed to pop up repeatedly in forex markets. First, the Canadian Dollar breached the mythical 1:1 barrier against the USD; then, it looked as though the Australian Dollar would follow suit. The most recent battle for parity is being waged across the Atlantic Ocean, between the British Pound and the Euro. Both economic and monetary circumstances favor the Euro, as the housing crisis pummeled the UK economy and the UK Central Bank subsequently embarked on a steep program of monetary easing. The Euro has probably also received a boost from the perception that the EU is one of the most stable economies and investing locales, outside of the US. In any event, investors tend to get carried away with psychological milestones and ignore economic fundamentals, which means the Euro could quickly achieve parity, before pulling back. The Wall Street Journal reports:

On Monday, one euro briefly bought almost 98 pence, a new record. That paves the way for parity “as early as this week,” wrote Ashraf Laidi, chief market strategist at CMC Markets.