BoE Inflation report may affect Sterling

10th November 2010
Good morning. Yesterday we hit 6 week highs vs the Euro, and 9 month highs vs the US Dollar. As we predicted in yesterdays report, the gains were short lived and Sterling fell back ahead of today’s Bank of England report. Rates this morning at 08:30am are as follows:

  • GBP/EUR 1.1578
  • GBP/USD 1.5994
  • GBP/AUD 1.5896
  • GBP/NZD 2.0464
  • GBP/CAD 1.6036
  • GBP/CHF 1.5521
  • GBP/HUF 316.10
  • GBP/ZAR 10.942
  • GBP/JPY 130.55
  • EUR/USD 1.3723

Bank of England Inflation Report

Better UK data has been supporting sterling of late, which is the reason rates have risen over the last few weeks. Today though we have the Bank of England inflation report which could change things.

The quarterly report publishes a report of the detailed economic analysis and inflation projections on which the Bank’s Monetary Policy Committee bases its interest rate decisions, and presents an assessment of the prospects for UK inflation over the following two years. It can give clues as to Interest rate movements and the chance of further Quantitative Easing.

There is a risk that the Bank of England Governor, Mervyn King, could adopt a dovish bias today which would take the wind out of sterling’s sails. King’s news conference just after the report should give some clue to how seriously policymakers considered following the Fed’s lead and expanding the BoE’s quantitative easing programme.

So, if the BoE are dovish and try to talk Sterling down, then expect the pound to fall from it’s recent highs.

Today’s other data

Other than the BoE Inflation report detailed above, today is US Focused. We have releases outlining Import Prices and Jobless Claims. The USD is very weak at the moment creating the best buying levels for 9 months. If the above data is good, then expect a reverse of this trend and rates to fall back below $1.60.

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