BoE Minutes Dampens QE Hopes

BoE Minutes Dampens QE Hopes

The minutes of the Bank of Englands' latest monetary policy meeting indicate that Adam Posen had dropped his call for further easing measures. This outcome should be highly supportive for the Pound in today’s trading session. Additionally, the domestic labour market scenario showed an improvement with a drop in the unemployment rate.

Multiple factors contributed to risk positive markets yesterday, including robust Spanish short term bond auction and an unexpected improvement in German and Eurozone economic confidence indices. The IMF also quashed fears of a global slowdown following an upward revision to its global economic growth forecast.

Pound Sterling – UK Markets

Receding hopes of an additional round of easing for the British economy following an unexpected rise in the UK inflation for March had strengthened Sterling against the US Dollar yesterday. Hopes that the UK economy would avoid a recession this year continued to strengthen after the IMF raised its growth forecast for the UK economy to 0.8% for 2012, compared to its earlier projection of a 0.6% growth.

However, positive signs emerging from Europe provided support to the Euro against the Pound with the movement relatively subdued.

The minutes of the BoE’s latest monetary policy meeting just released indicated that Adam Posen, the long term advocate of additional stimulus, had dropped his call for further easing measures. This has left David Miles as the sole policymaker continuing his support to more QE. Market participants appear to have high expectations that this will prove highly supportive for the Pound in today’s trading session. On the labour market front, the unemployment rate fell to 8.2% for February and the number of jobless claims seekers rose at a slower pace for March.

US Dollar – US Markets

Yesterday, the US Dollar registered declines against the majors after the IMF boosted its global growth projection for the first time since 2011. The agency expects the US economy to grow at 2.1% this year, up from its previous forecast of a 1.8% growth. Additionally, robust demand at the Spanish bond auction and positive German and Eurozone confidence data eased fears over the European crisis.

However, the US Dollar has pared its previous session losses against the majors this morning. Recent economic indicators in the US have rekindled hopes of additional easing for the economy. Following a dismal set of releases from the job market, indicators are now highlighting weakness in the manufacturing sector. Weaker than expected industrial production, coupled with downbeat manufacturing data from the New York region, has raised questions over the strength of the recent recovery. Additionally, weakness in the housing sector was in the spotlight after data revealed a steep fall in housing starts for March.

Euro – European Markets

The Euro witnessed an uptrend against the US Dollar yesterday as Spanish short tenure bond auction garnered increased demand and 10 year yields dipped below the crucial 6% level. Moreover, an unexpected improvement in German and Eurozone ZEW economic sentiment index underpinned the upbeat momentum.

Growth prospects turned brighter after the IMF lifted its growth targets for Europe along with an upward revision to global growth forecasts. However, the agency warned that Spain and Italy would miss their budget deficit goals for 2012 and 2013.

In today’s trading session, the Euro has resumed its southward journey against the majors, indicating that market participants are still wary about the European debt situation. Pedro Passos Coelho, the Portuguese Prime Minister, warned that the time frame for the country to return to international capital markets following its bailout might be delayed to September 2013

Other Currencies – Highlights

The Canadian Dollar has continued to strengthen against the US Dollar this morning after the Bank of Canada (BoC) signaled prospects of an interest rate hike yesterday amid inflationary pressures and improving economic conditions. The Canadian Dollar found further support after both the BoC, and the IMF, raised their 2012 economic forecast for the Canadian economy. Meanwhile, the central bank in its monetary policy meeting yesterday maintained its benchmark interest rate unchanged at 1%, in line with market estimates.

Focus is now expected to shift onto inflation data scheduled later this week which is expected to indicate an easing for March. The central bank’s monetary policy report slated for release later today is also likely to be closely tracked for meaningful insights.

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Yesterday’s unexpectedly weak US macroeconomic data is likely to somewhat dampen recent optimism...

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