Wednesday, 23 April 2014

Pound/Euro rates fall after BoE Minutes

Wednesday 23rd April 
We’ve had good news and bad news about the UK economy today, but the bad news won the day and as a result we have seen the Pound fall, as I suggested that it would in my post yesterday, and it was for the reason I predicted, the Bank of England minutes. I’ll give you the good news first after a quick snapshot of today's Pound/Euro movements:



The good news: 


At 09:30am this morning we actually had some very positive UK data – figures showed that Public Sector borrowing by the government was much less than expected. Markets expected a number of £9.1bn, but the actual figure was only £4.86bn. This was very good news, however failed to make any impact on the value of the Pound as everyone waited for the Bank of England minutes. 

The Bank of England's Monetary Policy Committee (MPC) has increased its UK economic growth forecast for the first quarter of the year, from 0.9% to 1%. There was further good news for the economy from a survey by the CBI, which indicated strong growth in orders for UK manufacturers. 

The bad news: 


Now for the bad news, and this is what affected the currency markets today. Focus today was always going to be about the Bank of England minutes. These showed that there is no real consensus within the Monetary Policy Committee, and they highlighted a growing debate between policymakers about slack in the economy and the medium-term inflation outlook. 

The markets took this as a sign that an interest rate hike in the UK is some way off, and as the chart below shows we saw the Pound/Euro level drop from 1.22 down to 1.2130 where it settled. 

What next for Pound/Euro 


I actually think this dip may be short lived. The next main data is tomorrow’s speech by the ECB president Mario Draghi. As I outlined yesterday, he may hint at monetary easing, such as Quantitative Easing, to stop the Euro getting to strong. If he does hint at this in his speech at 11am tomorrow, then expect GBP/EUR to bounce back. 

Those with Euros to sell should therefore consider taking advantage of the dip we have seen today. Euro buyers should hold off for gains, but place a Stop Loss order to protect you in case he says nothing about easing and the rate drops further. 

We also have UK Retail Sales on Friday which I think could be better than many analysts expect, so I don’t think we’ll see the rate drop much further in the short term. 

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