Wednesday, March 21, 2012

GBPUSD Lower On MPC Minute Release

With minutes to go before the UK releases it annual budget, the GBPUSD has fallen to 1.5870 from an earlier high of 1.5923.  The drop is the result of the Banl of England’s MPC Minutes that were released earlier this morning and showed two of the central bank’s members calling for an increase to its Asset Purchase program.  The emergence of a Dovish faction calling for further monetary easing has as well as the BoE warning about short term inflation after yesterday’s UK CPI dropped to a 15 month low shows that the central bank may not be quite ready to pull back from its stimulus actions.  As a result, Forex traders have decided to unload the GBPUSD this morning, not taking further risks before the Budget data has been released.

On a positive note for the GBPUSD, the pair’s low of 1.5840 following the MPC Minutes is just around its previous support base that it had created earlier in the week. Therefore, unless that level breaks and we see the GBPUSD drop to 1.5800, “buy on the dip” demand appears to be remaining intact.

More on the BoE’s Minutes from Daily FX:
A majority of Bank of England board members saw “no reason” to change the central bank’s benchmark interest rate and current quantitative easing program, the BOE minutes revealed today. Board members voted unanimously to keep rates at ultralow levels, while two members supported increasing quantitative easing but were outvoted in a 7-2 vote.
Dovish board members Miles and Posen argued that more is needed to maintain the economy's supply capacity, but the majority of BOE members said they believed increased quantitative easing would send a message that the economy is worse than it actually is.
The minutes on the whole pointed to a relatively unchanged picture as the BOE attempts to juggle lagging growth with inflation risks. The central bank said that recent economic data reveal a “moderate” growth increase in the UK, as the economy begins to turn around after experiencing a massive stunt in growth over the past three years. The BOE said that it sees inflation easing to manageable levels in the coming years; however the central bank referenced “substantial, clear” inflation risks in the short term as political tensions continue to boost oil prices and erode consumer confidence.  Read More

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