“Green shoots” trampled by Mervyn King
Sterling has slumped lower following this mornings Quarterly inflation report by the Bank Of England emphasising a slow and uncertain recovery.
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The inflation report is the first since the introduction of QE in March and the report was eagerly awaited to assess the inflation projections in the UK. Mr King was downbeat in his assessment of the UK economy and emphasized the uncertainty in the economy stating “it would be extremely unwise for anyone to claim they know what the future is to hold” and he also intimated that there would be no end to credit easing and interest rates will remain low for the foreseeable future. So not particularly cheery from Mr King and this certainly takes the shine off yesterdays “green shoot” declarations from various economic pundits for the UK- in fairness a conservative approach is sensible to avoid the market trading on sentiment rather than reality.
Following the report sterling dipped from 1.53 against the dollar to 1.5139, against the euro sterling dropped from 1.1190 to 1.11. In other data from the UK we saw unemployment jump to its highest level since 1996 in a leaked report yesterday afternoon….the number of UK unemployed jumped by almost a quarter of a million in the first 3 months of the year taking the total levels to 2.2 million. However manufacturing production fell by just 0.1% compared to expectations of a drop nearer to 1%- continued improvement in manufacturing production will be essential to drive growth and stop the rot of unemployment levels surging higher still…
Elsewhere, we saw China post a higher than forecast retail sales number but lower industrial output data….good news that the Chinese consumer is buying but they will hope to see an improvement in output soon. Later today we see retail sales data from the US- it is expected to remain flat but any bad news here mirroring the March dip of 1.2% will shake up the markets and cause a move into risk aversion and USD/YEN buying again.
One currency pair to watch is EUR/USD which earlier broke through 1.37 before retracing to 1.36- the increase in Oil to $60 per barrel driving this pair higher for now.
report by Phil McHugh, Corporate Foreign Exchange
The contents of this report are for information purposes only.
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