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BoE: No Need To Rush Aug 08 at 12:23 GMT
- Sir Merv Swerves Again
- GBP/USD Remain Volatile
- Feel-Good Factor Fails To Flourish!
Set against a backdrop of today’s German industrial production figures which show an alarming drop of 0.9 percent in June from previous month, and Spanish industrial output falling during the same period by a whopping 6.9 percent, Sir Mervyn King has been answering press questions on the release of the Bank of England’s quarterly inflation report. Coming as no surprise, especially for savvy forex traders, the BoE has cut the UK GDP forecasts, citing a weakening outlook since May.
Ahead of the Bank’s governor taking the stage, euro/sterling was trading with marginal gains. Against the U.S. dollar, GBP stood at 1.5583, off of a low of 1.5574 on currency charts earlier this morning. After Sir Mervyn began speaking, sterling bombed against the greenback. The pair remain volatile whilst the market dig behind the headlines of the report, with a 36-pip range from 1.5573 to 1.5609. At the time of writing, euro/dollar seems to be trying to stabilize around 1.5585 area.
Meanwhile euro/sterling is extending the upside sparked in the last part of July, when it was trading in the 07750/60 region.
--CLICK CHART FOR THE LATEST ON THIS PAIR --
Whether or not the GBP will feel any positive effects from the London Olympics remains to be seen. The Bank of England expects a "small positive contribution" to economy, though primarily through ticket sales and TV rights. As Ranvir Singh, CEO of the market analysts RANsquawk, commented: "The Governor did his best to sound upbeat, even looking to Britain's Olympic team for inspiration. But after the triumph of so many British athletes, his assertion that the country's economy is 'slowly healing' sounds all the more underwhelming.”
To Hell In A Diving Suit!
The jury is still out on the Bank's Funding for Lending scheme, but there is growing consensus that the £50 billion currently rolling off the money presses in the latest dose of QE will not be enough to speed the recovery.
"So with the existing stimulus medicine so clearly failing to revive the patient, pressure will grow on the Bank to try more drastic treatment,” continued Singh.
"But Sir Mervyn's assertion that a cut in the UK base rate to a historic low of 0.25 percent would be counterproductive will disappoint many. QE remains his prescription of choice. But if it fails to deliver, then what?”
Amid the Governor's mantra of 'storm clouds rolling in from the euro area', there was one silver lining: inflation will continue to fall, and is now within touching distance of the Bank's target. But as Singh concludes: "The easing of inflationary pressure will bring some cheer to cash-strapped consumers, but the economy is currently hobbling round a marathon course in a diving suit. No amount of Olympic feel-good factor can hide the fact that the recovery is going to be long and painful!"
Drew Hillier. Editor, ForexSpace.com
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Overview
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 USD/JPY
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101.3600 | -0.6200 | -0.61% |
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 EUR/USD
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1.2966 | 0.0033 | 0.25% |
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 GBP/USD
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1.5119 | 0.0012 | 0.08% |
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Gold (USD/oz)
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1,387.7650 | -3.4750 | -0.25% |
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Silver (USD/oz)
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22.4496 | -0.1644 | -0.73% |
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Majors
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USD/CHF
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0.9615 | -0.0073 | -0.75% |
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EUR/GBP
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0.8578 | 0.0016 | 0.18% |
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 AUD/USD
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0.9690 | -0.0053 | -0.54% |
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USD/CAD
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1.0327 | 0.0021 | 0.20% |
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EUR/CHF
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1.2467 | -0.0064 | -0.51% |
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Others
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 GBP/ZAR
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14.4221 | 0.0229 | 0.16% |
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 INR/USD
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0.0180 | 0.0000 | 0.11% |
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 TWD/USD
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0.0334 | 0.0000 | 0.00% |
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 NZD/USD
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0.8104 | -0.0026 | -0.32% |
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 HKD/USD
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0.1288 | 0.0000 | 0.00% |
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