Monetary policy and fixed exchange rateWatch
The Tutor2u Toolkit says, in order to maintain a currency peg, the central bank can:
"raise domestic policy interest rates: Increasing the interest rates will lift the expected return to short term flows of capital coming into the country's banking system. Other things being equal, an influx of "hot money" will cause an outward shift in the demand for the currency and an appreciation of the exchange rate - helping to maintain the currency peg"
...I don't understand how you can have a fixed exchange rate and use monetary policy?
And surely if its fixed then it means that the central bank can directly declare a new fix but can't revalue/devalue the currency through monetary policy?
The BoE will HAVE to change interest rates if it wanted to pursue a specific currency peg.