Pound Looks to Risk Trends While Waiting for BoE Direction
Posted 04-20-2010 at 04:28 PM by DailyFX
The British pound saw support overnight on the back of consumer prices accelerating to 3.5% from 3.0%, raising speculation that the BoE will bring an end to their QE measures. The central bank has been the laggard amongst the G-7 in announcing the termination of its asset purchase program as it continues to see downside risks.
GBP/USD
The British pound saw support overnight on the back of consumer prices accelerating to 3.5% from 3.0%, raising speculation that the BoE will bring an end to their QE measures. The central bank has been the laggard amongst the G-7 in announcing the termination of its asset purchase program as it continues to see downside risks. The MPC is on hold until after the political elections in the country which has sunk yield expectations and limited their influence on price action to 3%. Risk trends continue to be the main driver for the GBP/USD which has seen its correlation with stocks hold near 40% over the past month.
BoE Interest Rate Expectations
Inflation above the BoE’s 3.0% threshold would typically send interest rate expectations soaring, but policy makers have maintained that although upside risks remain in the short-term, prices will return to target levels. The MPC has cited existing slack and tight credit markets as they main reasons for their dovish outlook. The upcoming BoE minutes may give us some insight as to whether inflation is becoming a greater concern and may lead the central bank to terminate its asset purchase program and look toward tightening. Employment and retail sales reports are also due to cross the wires and are expected to show that the recovery is sustaining. Jobless claims are forecasted to fall by 10,000 and consumption is projected to have risen by 0.6% in March. Discuss this and trading ideas join the GBP/USD forum.
FOMC Interest Rate Expectations
Fed fund futures continue to point toward the central bank remaining on hold until at least November with markets only pricing in an 18.1% chance of a rate hike in August. Upcoming inflation, housing and employment data may do little to shake that view. Producer prices are forecasted to have risen to 6.0% from 4.4% which could have the greatest impact as rising prices would fuel concerns over future inflation. The weekly initial jobless claims data isn’t as impactful due to its volatility but the importance of the labor market gives it additional weight and increases its potential to create volatility.
Risk
Strong corporate earnings continue to push equity markets higher as Coca Cola, Harley Davidson and Johnson & Johnson beat estimates. Improving demand is starting to pick up the slack from the diminishing returns of costs cutting. Companies are operating at a high efficiency level which amplifies the impact if a small increase in sales. The blue chip index is looking to re-test trend line resistance which could limit gains. However, a break above could spark an extend rally which could lead to GBP/USD support. Discuss this and other fundamental data in the Economics Forum.
To discuss this report or be added to the email list contact John Rivera, Currency Analyst: jrivera@fxcm.com
Read more: DailyFX - Pound Looks to Risk Trends While Waiting for BoE Direction http://www.dailyfx.com/forex/fundame...sk_Trends.html
GBP/USD
The British pound saw support overnight on the back of consumer prices accelerating to 3.5% from 3.0%, raising speculation that the BoE will bring an end to their QE measures. The central bank has been the laggard amongst the G-7 in announcing the termination of its asset purchase program as it continues to see downside risks. The MPC is on hold until after the political elections in the country which has sunk yield expectations and limited their influence on price action to 3%. Risk trends continue to be the main driver for the GBP/USD which has seen its correlation with stocks hold near 40% over the past month.
BoE Interest Rate Expectations
Inflation above the BoE’s 3.0% threshold would typically send interest rate expectations soaring, but policy makers have maintained that although upside risks remain in the short-term, prices will return to target levels. The MPC has cited existing slack and tight credit markets as they main reasons for their dovish outlook. The upcoming BoE minutes may give us some insight as to whether inflation is becoming a greater concern and may lead the central bank to terminate its asset purchase program and look toward tightening. Employment and retail sales reports are also due to cross the wires and are expected to show that the recovery is sustaining. Jobless claims are forecasted to fall by 10,000 and consumption is projected to have risen by 0.6% in March. Discuss this and trading ideas join the GBP/USD forum.
FOMC Interest Rate Expectations
Fed fund futures continue to point toward the central bank remaining on hold until at least November with markets only pricing in an 18.1% chance of a rate hike in August. Upcoming inflation, housing and employment data may do little to shake that view. Producer prices are forecasted to have risen to 6.0% from 4.4% which could have the greatest impact as rising prices would fuel concerns over future inflation. The weekly initial jobless claims data isn’t as impactful due to its volatility but the importance of the labor market gives it additional weight and increases its potential to create volatility.
Risk
Strong corporate earnings continue to push equity markets higher as Coca Cola, Harley Davidson and Johnson & Johnson beat estimates. Improving demand is starting to pick up the slack from the diminishing returns of costs cutting. Companies are operating at a high efficiency level which amplifies the impact if a small increase in sales. The blue chip index is looking to re-test trend line resistance which could limit gains. However, a break above could spark an extend rally which could lead to GBP/USD support. Discuss this and other fundamental data in the Economics Forum.
To discuss this report or be added to the email list contact John Rivera, Currency Analyst: jrivera@fxcm.com
Read more: DailyFX - Pound Looks to Risk Trends While Waiting for BoE Direction http://www.dailyfx.com/forex/fundame...sk_Trends.html
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