By ForexMansion.com
The Pound Declines as BOE Minutes Show Dovish Tone
The euro is marginally lower as markets focus on the political situation in Portugal and the looming risk that the country will join Greece and Ireland in needing a bailout package. The Portuguese parliament votes on its proposal for budget cuts today, which Prime Minister Socrates hoped would be austere enough to shore up investor confidence. However, the opposition party, the Social Democrats, is expected to reject the proposal possibly leading Socrates to call a general election. These developments greatly increase the chances that Portugal will need EU funds soon. EU Industrial Orders came in worse than expected .1% compared to 1.3%. Tomorrow, the markets will keep an eye on German PMI (830 GMT) and EMU PMI (900 GMT).
The pound moved lower after the minutes from the BOE meeting were released. Even before today’s Budget, the minutes of March’s Monetary Policy Committee (MPC) meeting defied market expectations of a slightly more hawkish tone, reinforcing the view that the markets are overpricing the chances of BoE tightening in the coming months. For the majority on the Committee the underlying resilience of the UK economic recovery was far from clear going into the Japan and Middle East shocks and the additional uncertainty since then will serve to balance out deteriorating near-term UK inflation prospects. Tomorrows retail sales will shed light on the consumer (930 GMT)
The yen is little changed and JGB yields are between 1 and 7bps lower despite revised estimates for reconstruction costs by the Japanese government. Economic Minister Yosano stated that the damage from the earthquake and tsunami would swell to between 16 and 25 trillion yen. This number, however, does not include the collateral damage due to radioactive contamination and electricity outage. The Japanese government is starting to draw up the supplemental budget based on these estimation. Tomorrow’s release of CPI (2330 GMT) will be important give the deflationary nature of the earthquake and nuclear crises.
