Sterling rallies despite downgrade to growth forecasts

Morning Comment        

Current mid-market inter-bank spot rates (as at 08:05 BST)

Major sterling

Major US$

Sterling emigrate

Other sterling

Euro crosses

Data / Events due today

Fundamental

The Bank of England Inflation report threw up little by way or surprise with growth forecasts lowered due a weakened outlook since the may report. A combination of fiscal adjustments in the UK and the crisis in Europe were blamed for soft demand. However, Bank of England Governor Mervyn King stated that the balanced risks to inflation towards the end of the forecast period meant no need for urgent action and that a rate cut would be ‘more counterproductive than not.’ The comments from King were enough to give sterling a lift.

The euro was on the back foot amid reports that there would be no bond purchases from the ECB until after a German ruling, scheduled for September 12^th, on the bailout fund.

In the States, Dallas fed president Fisher countered his Boston counterpart’s dovish tone from Tuesday as he stated the Fed ‘has done enough.’

Overnight, Chinese inflation came in at 1.8%, marginally above the 1.7% expected but still a sharp drop from 2.2% in June. Industrial production and retail sales in the world’s second largest economy were both slightly below consensus. Together, the data does nothing to diminish expectations for central bank actions to stimulate the global economy which in turn is keeping risk associated assets supported.

Ahead today, the ECB monthly report may give additional insight towards the path that may be taken in the coming months. Consensus suggests there will be a reversal of May’s narrowing in the UK trade deficit and this afternoon the main focus will be on initial jobless claims and trade data from the U.S. although market reaction is likely to be muted.

Technical

£-usd

Sterling held firm yesterday to post a fourth successive higher low, a sequence that would need a push below 1.5570 today to break. Overhead resistance at 1.5720/85 remains strong however so we continue to view sterling gains with caution. Only beyond 1.5785 suggests 1.5910, 1.6000 and 1.6060 become realistic targets. Support today at 1.5620/10, 1.5570, 1.5525 and 1.5480.

£-eur 

The pound has pulled away nicely from 1.2575 support but the rally has thus far been contained by resistance around 1.2685. Beyond here needed to kick in another leg higher to 1.2725 then 1.2760. Support today at 1.2620, 1.52575/60 and 1.2500.

Analysis of further currency pairs, forward contract pricing, and information on limit or stop loss orders is available at any time on request.

Telephone 0131 476 7371

<<Back