By FXEmpire.com
Outlook and Recommendation
The GBP/USD ended April at 1.6250, after taking most of the month to break the 1.60 price, it has been a straight move upwards since.
Inflation picked up for the first time in six months in March, rising to 3.5% y/y from 3.4% in February, and remains worrying for the Bank of England (BoE). The central bank will update its inflation and growth forecasts at the time of the monetary policy meeting scheduled for May 10th. A higher inflation projection offset by a lower growth outlook will likely keep the BoE from altering monetary conditions at this point, though we note that the possibility of another round of quantitative easing has increased.
After having traded within a range for over two-months the British pound (GBP) rallied significantly at the end of April. A less dovish BoE was the catalyst for the rally; however, the UK’s Triple-A status, its favorable position as an inter-European diversification play (note EURGBP has dropped to a 22 month low) and more favorable investor sentiment have supported the currency and are likely to continue to do so. We consider ourselves GBP bulls, looking for GBPUSD to close the year at 1.63.
The US dollar (USD) has shown remarkable resilience since the beginning of the year. Meanwhile, the steady bullish tone enjoyed by US equity securities since November 2011 implies a gradual US economic improvement; indeed, the S&P500 index gained 21% in the last five months. Both consumer confidence and corporate profits show signs of gradual improvement and the US economy expanded by 2.2% on an annualized quarter-on-quarter basis during the first three months of the year. Positive momentum in riskier US assets was also apparent, as reflected in the VIX volatility indicator, with positive spillovers into emerging-market assets. Finally, the ongoing stimulus provided by the US Federal Reserve (Fed) continues to discourage capital outflows from high yielding emerging-market countries; the benchmark 10-year US Treasury (UST) bond yield remains below the 2% mark.
Central Bank Name: Bank of England
Date of next meeting or last meeting: May 10
Current Rate: 0.50 % (- 0.50)
Statement highlights of last meeting: The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to continue with its program me of asset purchases totaling ?325 billion financed by the issuance of central bank reserves. The previous change in Bank Rate was a reduction of 0.5 percentage points to 0.5% on 5 March 2009. A program of asset purchases financed by the issuance of central bank reserves was initiated on 5 March 2009. The previous change in the size of that program was an increase of ?50 billion to a total of ?325 billion on 9 February 2012.
Economic events for the month of May affecting EUR,CHF, GBP and USD
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Tuesday, May 01 |
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10:00 |
USD |
ISM Manufacturing Index |
54.8 |
53.0 |
53.4 |
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Wednesday, May 02 |
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08:15 |
USD |
ADP Nonfarm Employment Change |
177K |
209K |
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Thursday, May 03 |
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07:45 |
EUR |
Interest Rate Decision |
1.00% |
1.00% |
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08:30 |
EUR |
ECB Press Conference |
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08:30 |
USD |
Initial Jobless Claims |
380K |
388K |
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Friday, May 04 |
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08:30 |
USD |
Unemployment Rate |
8.2% |
8.2% |
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|
08:30 |
USD |
Nonfarm Payrolls |
170K |
120K |
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Thursday, May 10 |
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07:00 |
GBP |
Interest Rate Decision |
0.50% |
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Wednesday, May 16 |
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04:30 |
GBP |
Claimant Count Change |
3.6K |
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Click here to read GBP/USD Technical Analysis.
Originally posted here
