Pound Hit on BoE Easing Talk

Pound Hit on BoE Easing Talk
by Korman Tam

The greenback was higher against the pound, rising to 1.64-figure and pushing the euro back towards the 1.46-level. Several key US economic reports were released this morning, including retail sales, producer price index and the New York Fed manufacturing survey. Retail sales in August were sharply higher than expected, with the headline figure jumping by 2.7% versus a revised 0.2% decline in July and the excluding automobiles retail sales report increasing by 1.1% compared with a revised 0.5% decline in the previous month. The September NY Fed manufacturing survey was also sharply better than forecast, rising to 18.88, beating calls for an improvement to 14.0 from 12.08 a month prior.

King pounds Sterling

The British pound plunged by over 200-pips in early Tuesday trading, slammed by commentary from Bank of England Governor Mervyn King. In King’s Parliamentary testimony, he hinted at further cutting the bank deposit rate, suggesting that the BoE was mulling over “reducing the remuneration” of bank reserves and that it would be a “useful supplement” to stimulate the ailing UK economy. While King expressed optimism that the sharp deterioration in economic fundamentals may have passed, he also added, “the strength and sustainability of the recovery is highly uncertain and the balance of risks to inflation around the 2% target remains on the downside”.

Economic data released from the UK overnight reaffirmed BoE Governor King’s outlook on inflation, with August CPI relatively tame, up 0.4% on a monthly basis and up 1.6% on an annualized basis. Meanwhile, the retail price index for August increased by 0.5% versus a flat reading in the previous month and posting a 1.3% decline versus a 1.4% drop a year earlier.

Cable stabilized just above the 1.64-level, hovering near 1.6430. Resistance is seen at 1.6460, followed by 1.65 and 1.6550. Additional ceilings are seen at 1.6580, backed by 1.66 and 1.6630. On the downside, support begins at 1.64, followed by 1.6370 and 1.6340. Subsequent floors are eyed at 1.63, followed by 1.6250 and 1.62.

Euro Sideways

The euro drifted sideways despite a softer than expected report on Germany’s sentiment survey, hovering just above the 1.46-level. Germany’s ZEW expectations survey jumped to its highest level in 3-years to 57.7 in September from 56.1 in August, albeit less than forecasts for a stronger improvement to 60.0. The ZEW current conditions index improved by less than forecast at -74.0, compared with -77.0 in the previous month and missing calls for an improvement to -68.0.

EURUSD holds steady around 1.46, with resistance beginning at 1.4650, followed by 1.47 and 1.4740. Additional ceilings will emerge 1.4770, followed by 1.48 and 1.4830. Support starts at 1.46, followed by 1.4560 and 1.4530. Subsequent floors are seen at 1.45, followed by 1.4450 and 1.44.