FOREX: Pound at Risk as Markets Look for Dovish BOE Inflation Report | Learn Forex | GoLearnForex.com

FOREX: Pound at Risk as Markets Look for Dovish BOE Inflation Report

Written by article default Wednesday, 10 August 2011 09:47

Talking Points

• Pound May Fall if BOE Inflation Report Alludes to More Stimulus
• Italy to Sell 1-year Bonds But ECB Buying to Underpin Outcome
• US Dollar Higher as Markets Correct After FOMC Announcement

The release of the Bank of England Inflation Report headlines the economic calendar, with traders keen to parse the document for updates on official growth and inflation forecasts as well as signs that further easing is being pondered. Indeed, leading economic data has increasing surprised to the downside while economists’ forecasts for GDP growth in the third and fourth quarters continue to be revised lower according to a survey from Bloomberg, pointing to a recovery that is becoming increasingly fragile. While the report – which had served as the basis for last week’s rate decision – clearly didn’t produce a change in the policy status quo for now, a dovish change in rhetoric that lays out an emerging bias in favor of additional stimulus could prove to weigh heavily on the British Pound.

Traders will also keep a close eye on an Italian bond auction as the largest of the so-called “PIIGS” sells off 6.5 billion euroin 1-year debt. A spike in yields or an incomplete allotment would weigh heavily on the Euro. However, the short maturity of the bonds on offer as well as the likelihood that European Central Bank will step in as a buyer of last resort in line with what was announced at last week’s policy meeting may keep the outcome from producing significant volatility.

On the sentiment front, S&P 500 stock index futures are pointing a touch lower in late Asian hours, but this seems to be corrective after shares soared on Wall Street weeks in the wake of the Federal Reserve monetary policy announcement. Ben Bernanke and company delivered as expected, dialing up the dovish rhetoric with a pledge to keep interest rates at “exceptionally low levels…at least through mid-2013” and alluding to the possibility of more asset purchases with a promise to adjust the size and composition of its securities holdings “as appropriate”.The US Dollar echoed the pullback in equity futures with a mild advance against the majors having finished the North American trade with the biggest drop in two weeks.

Related: Oceanic Dollars Capped by Risk Despite Better Chinese Trade Data; SNB Ramps Up Action to Tackle Franc Gains; EUR/CHF Spikes

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

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