The Pound strengthened against the Dollar and the Euro yesterday, despite a very dovish inflation report from the BoE Governor Mervyn King. King said it was unlikely that there would be a cut in interest rates, as he sees a cut as being counterproductive rather than beneficial. Inflation is set to fall below the target rate of 2% in the next year and the BoE has also slashed their growth forecast for 2013 from 1.9% to 0.8%. The bank expects the economy to stagnate this year.

The Pound strengthened against the Dollar and the Euro yesterday, despite a very dovish inflation report from the BoE Governor Mervyn King. King said it was unlikely that there would be a cut in interest rates, as he sees a cut as being counterproductive rather than beneficial. Inflation is set to fall below the target rate of 2% in the next year and the BoE has also slashed their growth forecast for 2013 from 1.9% to 0.8%. The bank expects the economy to stagnate this year. We believe the reason for the unexpected Sterling strength was due to the second GDP estimate which, even though it was negative, painted a much better picture than last month’s prediction of -0.7%. Yes we may be in a double dip  . . . . but who isn’t????

Also yesterday, the Euro traded low against the Dollar amid weak German economic data. Trade deficit in Germany and France widened and output for Spain and Italy continued to decline. The Euro however is still off its recent lows as investors await actions from the European Central Bank.

GBP/EUR is still a good buy and for all US Dollar buyers it may be an idea to place limit orders at 1.57 as this seems to be the resistance level.  

Today’s Fundamentals

09.30  UK Trade report  – This was previously -£8363  and is expected at -£8725.

13.30  USD Initial Jobless Claims – The previous figure was 365K     and it is expected at 370K.

13.30   USD Trade Balance  –  Previously this was  -$48.7B  and -$47.5B is expected.

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