Mervyn Kings dovish outlook for UK causes Sterling sell off

Tom Tong14/Feb/2013Currency Updates

GBP

Sterling lost further ground on the back of a dovish commentary by Bank of England governor Mervyn King yesterday. Initial signals were given that interest rates will remain static, at these historically low levels, acted as a booster for the FTSE index, however caused sterling investors to exit the currency.
Kings dovish stance on inflation was the main factor in causing sterling weakness, coupled with the BoE quarterly report predicting a “slow but sustained” recovery. Inflation is predicted to top 3 percent this summer. Despite this King say the bank will stay on course for stimulus measures. Sterling has weakened 4.7 percent this year, the second- worst performer after the yen among 10 developed-market currencies.
No major data released today, however, retail sales is anticipated tomorrow along with retail sales.

EUR

After seeing a dramatic drop against the pound and Dollar yesterday, the Euro managed to remain firm overnight ahead of the GDP figures released this morning. France and Germany were the first to provide their current levels, both showing a lower than expected figure, with France stating a -0.3% retreat as opposed to the -0.2% expected and Germany following a similar suit posting a still positive but lower figure of 0.4% compared to the 0.5% expectations.
This gives initial indications of what to expect at the 10 o’clock release of the Eurozone collective figures, with the market already pricing in the expected -0.7% fall, already down on the previous figure of -0.6%. Any further movements on the downside of this figure can ensure the Euro is put on the back foot in the interim.
Furthermore the ECB is due to release its monthly report at 9 am, which will hopefully give traders and investors a greater insight into the current predicament the Eurozone faces.

USD

Yesterday, stable retail sales, and better than expected Core retail sales added to the stability of the USD. President Barack Obama said the proposals in his State of the Union speech won’t increase the U.S. deficit “by a single dime.” He didn’t say they’d be free. The president’s wish list, involving a mix of one-time and continuing costs, amounts to billions of dollars largely to boost the economy and job creation. Just how many billions will become clearer when he submits his budget proposal to Congress in mid-March.
Unemployment claims are predicted to be down today, showing continued growth in the labour market.

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Written by Tom Tong

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