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BoE To Hold Dovish Outlook Despite Record Higher Inflation

Tuesday, 14 October 2008 10:43:41 GMT  |  David Song, Currency Analyst

Fundamental Headlines

• 'Smart Money' Stays on the Sides – Wall Street Journal
• Sovereign Sells Itself to Spain's Santander – Wall Street Journal
• US crisis freezes China sovereign funds– Financial Times
• Citigroup, Goldman, Seven Banks May Get $125 Billion Investment From U.S. – Bloomberg
• Icelanders Sink Under Foreign-Currency Loans as Krona Plunges – Bloomberg

• GBPUSD – The U.K. consumer price index surged to a record high reading of 5.2% from 4.7% in August, which was much greater than the 0.3% gain to 5.0% projected by economists. In addition, the core measure for inflation unexpectedly increased to 2.2% from 2.0%, reaching its fastest pace since record keeping began in 1992. Furthermore, the retail price index rose to 5.0% from 4.8%, while excluding mortgage payments, the index rose to 5.5% from 5.2%, which is the highest reading since 1992. Meanwhile, the DCLG house price index slipped to a five year low of -3.4% from -0.3% in July, signaling that economic activity may remain subdued for the rest of the year due to the lack of recovery in the housing and credit sector. Despite higher inflation, the BoE could be forced to ease policy further as Europe’s second largest economy may have slipped into a recession in the third quarter. Discuss the topic and your trade ideas in the GBP/USD Forum.

• EURUSD - The German ZEW investor confidence index fell for the first time in three months as it plunged to -63.0 from -41.1 in September. In addition, the economic sentiment survey slipped to -35.9 from -1.0, indicating that the downturn in the global financial market has certainly heightened growth fears as Europe’s largest economy teeters on the brink of a recession. On a lighter note, industrial production in the Euro-Zone increased for the first time in four months as outputs jumped 1.1% after falling 0.3% in July. Despite the improved data, market participants expect economic activity to deteriorate over the rest of the year as the global economy slows down, which has spurred bets that the ECB will lower the benchmark rate further as growth prospects deteriorate. Discuss the topic and your trade ideas in the EUR/USD Forum.

Related Articles:

ECB's Stark Reiterates Concerns, Highlights Further Easing Ahead as Upside Inflation Risks Subside

Euro and Pound Choppy Ahead Of U.S. Bank Recapitalization Plan Announcement

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