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GBP/USD: The Bank of England minutes for the month of June showed that the decision to keep interest rates at 0.5 percent was not unanimous as policy maker Andrew Sentance said it is appropriate to “gradually withdraw” BOE stimulus measures amid inflation risks. This is the first time in seven months that policy makers did not come to a unanimous consensus. In addition, the MPC said that U.K.’s growth momentum may be more than previously thought, while the majority of the members said the balance of risks signaled for no change. Indeed, the committee recognized that it will take a while for inflation to return to the central bank’s 2 percent target, however, the overall view of the U.K.’s medium-term outlook for consumer prices remain relatively unchanged from its previous meeting. Compared to previous decision, only eight members voted as one individual was absent. Today’s meeting follows the emergency budget in which we saw Chancellor of the Exchequer Osborne aim to restore the fiscal surplus in 2015. Highlights of the budget include the main rate of the value-added sales tax increasing to 20 percent from 17.5 percent beginning January 2011, while tax payers on higher rates will pay 28 percent capital gains tax. Moreover, there will be a bank levy which will apply to banks balance sheets and once fully in place, is expected to generate 2 billion pounds of annual revenues. This adds concern for the U.K. economy as tax increases and spending cuts may cause the country to slip back into a mild recession. However, worth noting is the cut in the corporate tax rate from 28 percent to 27 percent in 2011, and 26 percent in 2012. The cut may provide some support to business investment. To discuss this and other topics, please visit the GBP/USD forum.
EUR/USD: Consumer confidence Europe’s largest economy remained unchanged at 3.5 in July, while economists were expecting the reading to fall to 3.3. Today’s reading comes to little surprise as Germany continues to strengthen its fundamental base. The unemployment change in May exceed economists’ expectations, tumbling 45K after plunging a revised 67K in April. In addition, business confidence in June unexpectedly rose to 101.8 from 101.5, while the current assessment reading also pushed higher during the same month. In turn, Bundesbank raised its growth forecasts. The central bank is predicting an expansion of 1.9 percent this year and 1.4 percent in 2011, revised up from 1.6 percent and 1.2 percent respectively. Thus, as policy makers continue to see an improved outlook for Europe’s largest economy, paired with an improved labor market, consumer confidence will likely push higher in the coming months. To discuss this and other topics, please visit the EUR/USD forum.
Chancellor of the Exchequer Osborne Confirms U.K. Will Not Join the Euro, Pledges to Cut Deficit
Written by Michael Wright, Currency Analyst
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BOE Voted 7-1 for 0.5% Interest Rates, 8-0 to Keep Bond Holdings at 200 Billion pounds
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