Bank of England's Inflation Report opens door to further easing

Tom Tong17/May/2012Currency Updates

GBP

Sterling hit a four-week low against the Dollar and dipped against the Euro on Wednesday ahead of the Bank of England’s inflation report, which saw reduced growth forecasts and leave the door open for more easing.

Investors bought on the safe-haven Dollar after efforts in Greece to form a coalition government broke down on Tuesday, heightening concerns the country could leave the Euro.

The central bank’s quarterly Inflation Report saw Sterling fall off to a fresh four week low against the Dollar, as well a session low on the Euro. Gilt futures reversed losses after the BOE inflation report gave a weaker outlook.

UK jobless data earlier in the day provided some positive news for Sterling ahead of the inflation report, showing the number of Britons out of work fell at the fastest pace in nearly a year in the three months to March.

EUR

European Central Bank President Mario Draghi acknowledged that Greece could leave the Euro area and signalled policy makers won’t compromise on their key principles to prevent an exit.

The Euro pared losses and bond prices slid on Wednesday after comments by Angela Merkel bolstered hopes that Greece would remain in the eurozone, while U.S. stocks rose on encouraging U.S. economic data.

The Euro climbed to a session high against the Dollar on the back of expectations that Germany and France will act together to keep Greece in the eurozone after Merkel met French President Francois Hollande on Tuesday.

We also saw a rise of 2.6% on the consumer price index.

USD

The Dollar maintained its winning streak on Wednesday as investors scrambled to the safe haven currency amid fears about Greece exiting the eurozone. It extended its longest rally in more than two decades yesterday after minutes from the latest Federal Reserve meeting raised questions about confidence on the outlook for the U.S. economy.

Investors took fright early in the session on reports of a sharp rise in bank withdrawals in Greece after efforts to form a new government failed. Fresh elections are expected in mid June but uncertainty about Greece’s future in the eurozone remains.

US home construction, rose by 2.6 per cent in April, official data showed, suggesting a modest pickup in economic growth.

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Written by Tom Tong

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