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British Pound Vulnerable If BoE Remains Directionless

British Pound Vulnerable If BoE Remains Directionless

2010-05-07 22:49:00
John Rivera, Currency Analyst
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Consumer prices are already above the central bank’s 3.4% threshold and may continue to accelerate if producers continue to try and pass through rising costs. Slight improvements in manufacturing -the highest level since 1994, construction and mortgage approvals showed that the U.K. recovery is sustaining. However, the mild improvements and an unexpected decline in the service sector PMI reading to 55.3 from 56.5 could be a sign that growth has started to slow. A non-eventful BoE rate decision would shift focus to the MPC’s quarterly inflation report, as it may provide the first statements from Governor King since the date for elections was set, as the central bank doesn’t customarily release a statement if no action is taken at their policy meeting. 

 
Sterling was sunk during the past week as the troubles in Greece combined with the concerns over the hung parliament saw it lose nearly 800 pips against the dollar. The GBP/USD has retraced over 300 pips from its low of 1.4474 putting the pair back within its prior broader range of 1.4800-1.5500. If the pattern holds true then more upside potential could be realized with 1.5000 and the 50-Day SMA at 1.5179 as possible resistance levels. The upcoming economic calendar will be full of event risk for the Pound as industrial production, employment and trade balance releases are scheduled in addition to the rate decision and quarterly inflation report. Strong employment and production figures could raise the outlook for inflation ahead of the BoE’s report and generate sterling support. - JR

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