Dovish BOE minutes and poor retail sales figures weaken Sterling as Bernanke reiterates Feds commitment to QE despite mounting opposition

Tom Tong23/May/2013Currency Updates

GBP

Fundamentals have begun to stack up against sterling, with a dovish set of BoE minutes in conjunction with poor retail sales figures that emerged yesterday evidently not a good result for the pound. The BoE said today that six members of the Monetary Policy Committee voted to keep quantitative easing at 375 billion pounds this month.

According to the minutes King, Miles and Fisher stuck to a campaign to increase stimulus by 25 billion pounds. Financial markets were not expecting further asset purchases at this meeting however they might reassess the committee’s tolerance of elevated inflation should additional stimulus be injected.”

Sterling Dollar maintained the bearish bias after BOE’s Minutes pointed for a possible assets purchase program extension up to £400B. Recoveries are still seen as selling opportunities with 1.5130 as main resistance to watch.” Sterling finished sharply lower for a second straight day, closing down which is the lowest close for the pair since mid-March

We expect volatility in the market today as the GDP figures for the UK economy are released by the National Statistics. The forecast QoQ is expected at 0.3% and YoY is expected at 0.6% up from 0.2%. The other data release of note is the Total Business Investment forecasted to increase from -.8% to 1.7% which presents the total amount of capital expenditures made by private firms.

EUR

ECB member Praet remarked on the group’s exploration of SME (small and medium-size business) loans and quality reviews of asset backed securities last night however all eyes will be on the Eurozone PMI figures which are forecasted to be slightly higher than previously at 47.2. The Manufacturing PMI will also be released with a consensus figure of 47.

While these figures may be higher than previously they are firmly under the 50 level that shows that the area is still in the grip of recession.

Late this afternoon Mario Draghi will give a speech concerning the state of the Euro which will be watched closely as could lead to more volatility in the markets if he hints at further recessionary behaviour.

USD

The markets have been looking for guidance on the future of the Quantitative Easing recently. Yesterday Fed Chairman Bernanke offered tentative yet tangible commentary concerning the reduction of the 85$ billion a month program. Bernanke pointed to the need to temper the economy and not become over reliant on Federal Easing.

Furthermore the FOMC minutes were released stating that some members believed that QE3 could be slowed as early as June.

Initial Jobless claims as well as Continuing jobless claims are due to be released this afternoon with consensus pointing to positive lowered amounts.

New home sales figures will also be released with consensus showing growth in the US housing industry. While these may not be tier 1 data points they do show underlying strength in the future of the US economy.

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Written by Tom Tong

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