The pound dropped over 50 pips following the release of the BoE minutes which revealed that the committee wasn’t unanimous on the amount to be added to their asset purchase program. The MPC voted 6-3 for the additional £50 billion with Governor Mervyn King and two others looking to add £75 billion.
[B]Talking Points
• Japanese Yen: Supported By Pull Back In Equities
• Pound: BoE Voted 6-3, King Calls For £75 Billion In QE
• Euro: German PPI Falls By Most On Record
• US Dollar: MBA Mortgage Applications on Tap
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Pound Sunk As BoE Minutes Showed Votes For £75 Billion In QE[/B][/U]
The pound dropped over 50 pips following the release of the BoE minutes which revealed that the committee wasn’t unanimous on the amount to be added to their asset purchase program. The MPC voted 6-3 for the additional £50 billion with Governor Mervyn King and two others looking to add £75 billion. Sterling was already under pressure before the release on slumping Asian equity markets leading the GBP/USD to decline over 200 pips from yesterday’s high of 1.6594.
The revelation that the central bank considered additional efforts beyond the already surprising £50 billion negated the bullish sentiment generated by yesterday’s inflation report’s surprising flat reading. The BoE stated that not enough stimuli could lead inflation to persist to remain below their 2% target. Although the MPC recognized that the immediate downside risk to the economy had receded, the depth of the recession increased the likeliness of slack in the economy. Give current bearish sentiment, the 38.2% Fibo of 1.4398-1.7045 at 1.6038 still appears to be a level that will be tested, especially if we see the developing head & shoulder’s formation fulfilled.
The Euro was equally weighed by the pull back in risk appetite slipping over 70 pips from a high of 1.4174. German producer prices declined by 7.8% versus expectations of -6.5% which was the largest fall in sixty years. The sharp drop in oil prices from a year ago continues to filter through the economy and continued disinflation in the region should limit interest rate expectations as the ECB will remain on hold. The region’s current account showed the deficit shrunk to -0.3 billion from -11.9 billion as the region saw an increase in the outflow of goods. However, on a seasonal adjusted basis the shortfall rose to -5.3 billion as demand for exports remains weak. The EUR/USD found support at 1.4092-the 50-Day SMA which continues to remain formidable and until we see a break below we would be reluctant to take a bearish stance.
The dollar regained its footing overnight as investors renewed their concerns that valuations were outpacing underlining fundamentals. The greenback continues to be influenced by risk sentiment despite brief bouts of fundamental influence and this may be the case until there is a clear recovery underway. The economic calendar will present very little event risk with only MBA mortgagee applications due for release. The weekly reading is very volatile and only garners passing interest from market participants. Canadian CPI at 11:00 GMT may spark some volatility but with the BoC committed to keeping their benchmark rate unchanged until mid-2010 it will lose some of its market moving potential.
Will The EUR/USD Remain Above 1.4000? Join us in the Forurm
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To discuss this report contact John Rivera, Currency Analyst: <[email protected]>