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The stagflation looms again to BOE

Discussion in 'Current Market Sentiments' started by fx-recommends, Feb 20, 2013.

  1. fx-recommends

    fx-recommends Content Contributor

    Aug 6, 2008
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    The FOMC minutes of its meeting on last 30th Jan came to show worries about the Fed’s QE outlook as what have been shown in the recent report.
    The FOMC’s members have given ideas but most of them were towards decreasing of the current QE plans not increasing them putting pressure on the current market sentiment causing loses in the equities markets and pushing the USD up on the risk aversion and on increasing of the closer than later expectations of ending or pausing the QE pumping liquidity of it.
    The greenback has found it easy to rise across the broad after these minutes and specially versus the British pound which has been hit today again by the release of the MPC recent meeting minutes on 7th of this month which have shown more followers to David miles who has voted on 10th of last Jan alone in favor of increasing BOE’s assets purchasing plan by another Stg25B to be Stg400B but the majority came again by keeping it unchanged despite Marvin King adoption of Miles’s view beside Fisher Against the other six members.
    As the majority has appreciated rising of the inflation upside risks as what has been seen in the recent inflation quarterly report represented a week ago by King who told the markets to be prepared for watching yearly inflation rate above BOE target at 2% for the coming 2 years after UK Jan CPI came at 2.7% y/y as it was it December and also after CBI has lowered its forecast of this year GDP to be up by only 1% from 1.4% in last November forecast of it in appreciation of the current uncertainty about the global growth and it has referred to an available space in front of the British Gov to spur growth by financial stimulation.
    And it looks right, as if you are to read between the recent data which have come out from UK, you can find easily Shrunk economy in 2012 Q4 by 0.3% q/q, weak manufacturing performance as what has been seen with UK Manufacturing PMI reading of Jan getting back again to 50.8 after rising for the first time in December to 51.2 in the expansion territory above 50 since last April, weak consuming spending as what has been seen with UK retail sales which slumped by 0.6% yearly and monthly in Jan, Higher unemployment rate as what has been represented yesterday by rising of ILO Unemployment rate to 7.8% again and that’s why King has seen that there can be space for another stimulation step with these current growth downside risk causing the current slowing down pace and it is less probable to cause rising inflation threat.
    So, you can easily see the stagflation risks rising again in UK after calming down in 2012 after it had cooled BOE role in 2011 when the stagflation was capping the MPC members from stimulation the economy fearing of the inflation rising further while it was all over 2011 above 4% reaching 4.8% in September 2011 before easing back again.
    As the yearly inflation rate have come under pressure in UK in 2012 giving distance to BOE to increase its Assets purchasing plan after diminishing the impact of the standard rate of VAT increasing for underpinning the governmental resources to 20% from 17.5% on 4th January 2011 which has contributed in raising the inflation by about 0.75% yearly over all the months of 2011 and it is still on with no cut can make a difference like what CBI has tried to refer to by mention the governmental role, while the monetary role can be capped as yearly inflation target of BOE which it works for is only 2%.
    And now again, we see BOE near this same stance again ahead of new coming president in June who will face rising prices and staged economy actually metalized on the wages which came down in UK to the lowest since 2003 to be at 11.21 pound per hour showing lower prosperity by the pressure of stagflation of the British citizen cooling his confidence in spending.
    God willing, GBPUSD can meet now in the case of falling further after falling yesterday below 1.5392 and 1.5267 whereas it has formed its recent bottom on 27th of last May meeting supporting level at 1.5123 before the psychological level at 1.50 which can be followed by 1.4947 while rising back from here can be met by resisting levels have been formed at the tops which has came in its way of falling down at 1.5316, 1.545, 1.5548, 1.5688, 1.5843, 1.5893 before the psychological level at 1.60

    Kind Regards
    FX Market Strategist
    Walid Salah El Din
    Mob: +20 12 2465 9143
    E-Mail: mail@fx-recommends.com

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