Trade FOREX with FXCM

  • Award-Winning Platform
  • 24/7 Customer Support
  • Trade Directly on Charts
  • Free $50K Practice Account

Resources

Forex: British Pound Bounces Back As BoE Maintains Current Policy, Euro Searches For Support

By , Currency Analyst
09 December 2010 12:30 GMT

Talking Points

  • British Pound: BoE Maintains Policy
  • Euro: ECB Says Rates 'Appropriate'
  • Japanese Yen: Gains Ground As Risk Falters
  • U.S. Dollar: Risk To Dictate Price Action

The British Pound bounced back from a low of 1.5732 during the European trade as the Bank of England maintained its current policy in December, and the GBP/USD may continue to pare the overnight decline throughout the North American session as investors scale back speculation for further easing. As expected, the BoE refrained from releasing a policy statement after holding the benchmark interest rate at 0.50% and maintaining its asset purchases at GBP 200B, and the central bank is likely to retain its wait-and-see approach throughout the beginning of the following year as it aims to balance the risks for the region. As the MPC is scheduled to release its policy meeting minutes of December 22, comments from the central bank is likely to play an increased role in driving price action for the British Pound going into the 2011, but there could be a growing split within the BoE as the economic outlook remains clouded with uncertainties.

We anticipate to see another three-way split within the MPC as board member Andrew Sentance pushes to gradually normalize monetary policy while Adam Posen sees scope to expand quantitative easing further, and the central bank is likely to maintain a cautious outlook for the region as the new coalition withdraws fiscal support. As U.K. policy makers expect the tough austerity measures to bear down on the recovery, the BoE may look to support the real economy throughout the first-half of 2011, but the ongoing stickiness in price growth could lead the MPC to hold a hawkish outlook for future policy as the central anticipates inflation to hold above the 2% target throughout the following year. As a result, if the BoE talks down speculation for future easing, the GBP/USD should continue to trend higher going into the end of the year, and the exchange rate may look to retrace the sharp decline from the previous month as interest rate expectations gather pace.

The Euro slipped to a low of 1.3194 during the overnight trade as the European Central Bank maintained a cautious outlook for the region, and fears surrounding the debt crisis may continue to drag on the exchange rate as policy makers struggle to restore investor confidence. The ECB reiterated that monetary policy remains “appropriate” in its monthly report, and said inflation expectations remain “firmly anchored” as it maintains its one and only mandate to ensure price stability. At the same time, the central bank noted that the uncertainties surrounding the economic outlook remains “elevated” as the governments operating the single-currency struggle to manage their public finances, and it seems as though the ECB is looking to push its primary mandate to the backburner as the Governing Council aims to encourage a sustainable recovery. As the central bank pledges to delay its exit strategy, policy makers may see scope to take additional steps to stimulate growth over the coming months, and the euro is likely to face increased headwinds in the following year as market participants speculate Portugal and Spain to share Ireland’s ill fate.

The greenback advanced against most of its major counterparts overnight, with the USD/JPY paring the decline to 83.65, and the U.S. dollar may continue to appreciate throughout the day as the rise in risk appetite tapers offs. As the economic docket remains fairly light for Thursday, market sentiment is likely to dictate price action going into the North American trade, but the fundamental developments from the world’s largest economy could spark increased volatility in the major currencies as investors weigh the outlook for future growth. Wholesale inventories in the U.S. are projected to increase another 0.8% in October after rising 1.5% in the month prior, but there could be little reaction to the data as risk trends continue to dictate price action in the foreign exchange market.

Will the EUR/USD Extend The Decline From November? Join us in the Forum

Related Articles: Forex Weekly Trading Forecast - 12.06.10

To discuss this report contact David Song, Currency Analyst:dsong@fxcm.com

FX Upcoming

Currency

GMT

EST

Release

Expected

Prior

CAD

13:30

08:30

New Housing Price Index (MoM) (OCT)

0.2%

0.2%

USD

13:30

08:30

Continuing Claims (NOV 27)

4260K

4270K

USD

13:30

08:30

Initial Jobless Claims (DED 4)

425K

436K

USD

15:00

10:00

Wholesale Inventories (OCT)

0.9%

1.5%

Currency

GMT

Release

Expected

Actual

Comments

NZD

20:00

RBNZ Rate Decision

3.00%

3.00%

Balanced statement, notes that future rate hikes will be less than earlier f/c.

NZD

21:45

Card Spending (MoM) (NOV)

--

1.4%

3rd straight expansion after 2 straight contractions

JPY

23:50

GDP Annualised (3Q)

4.1%

4.5%

Some upward revisions come on the back of Q3 CAPEX growth

JPY

23:50

GDP (QoQ) (3Q)

1.0%

1.1%

JPY

23:50

Nominal GDP (QoQ) (3Q)

0.8%

0.6%

JPY

23:50

GDP Deflator (YoY) (3Q)

-2.0%

-2.4%

AUD

00:30

Employment Chance (NOV)

20.0K

54.6K

Best readings since Jan and a 9th straight month of gains

AUD

00:30

Unemployment Rate (NOV)

5.2%

5.2%

AUD

00:30

Full time Employment Chance (NOV)

--

55.1K

AUD

00:30

Part Time Employment Chance (NOV)

--

-0.4K

AUD

00:30

Participation Rate (NOV)

65.8%

66.1%

JPY

02:00

Tokyo Average Office Vacancies (NOV)

--

9.04%

Rises after two months of drops

JPY

06:00

Machine Tool Orders (YoY) (NOV P)

--

104.2%

Climbs after sharply slowing in Oct

EUR

06:30

French Non-Farm Payrolls (QoQ) (3Q)

0.3%

0.1%

3rd straight expansion after 6 straight contractions

EUR

07:00

German CPI (MoM) (NOV)

0.1%

0.1%

2nd expansion after contracting in Sept.

EUR

07:00

German CPI (YoY) (NOV)

1.5%

1.5%

Fastest in 2010

EUR

07:00

German CPI – EU Harmonised (MoM) (NOV)

0.1%

0.1%

2nd expansion after contracting in Sept.

EUR

07:00

German CPI – EU Harmonised (YoY) (NOV)

1.6%

1.6%

Fastest in 2010

GBP

08:00

Halifax House Price (3MoY) (NOV)

-0.7%

-0.7%

1st contraction in 2010

GBP

08:00

Halifax House Price (MoM) (NOV)

-0.3%

-0.1%

6tth contraction in 2010

GBP

09:30

Visible Trade Balance (pounds) (OCT)

-8100

-8529

Remains near multi-year worst

GBP

09:30

Total Trade Balance (pounds) (OCT)

-4450

-3946

Widens out after 2 months of narrowing

GBP

09:30

Trade Balance Non-EU (pounds) (OCT)

-4500

-5004

Widest gap since Jan. ‘09

GBP

12:00

Bank of England Rate Decision

0.50%

0.50%

Maintains policy, minutes due out on December 22.

GBP

12:00

Bank of England Asset Purchase Target

200B

200B

provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from

09 December 2010 12:30 GMT