Forex Outlook: GBP Little Changed before Bank of England Inflation Report

on Nov 14, 2012

With markets anticipating the Bank of England inflation report later today, the pound was little changed against other majors, Bloomberg reported on November 14.

**Pound Sterling Little Changed**
The British pound traded within 0.6 percent of a six-week high versus the euro, reaching 80.12 pence per euro at 7:48 a.m. London time. The pound advanced by less than 0.1 percent against the greenback to $1.5884, after falling to $1.5858 on November 13, its lowest level since September 5. The pound traded at 126.82 versus the yen.

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“The UK will avoid the worst of the Eurozone crisis and the pound offers relative safety compared with the euro,” notes Nick Bennenbroek, head of currency strategy at Wells Fargo & Co (NYSE:WFC) in New York, as quoted by Bloomberg. “The pound has turned more resilient than it was earlier this year.”
**Inflation Report**
The “pound highlight” of the day will be the BoE quarterly report on inflation, scheduled to be published later today.

Reuters reports that economists expect the UK’s central bank to leave its medium forecast unchanged, with annual growth of two percent and inflation below the two percent target, which would give the BoE leeway for more stimulus action.
On November 13, however, consumer prices data indicated that inflation jumped back to 2.7 percent in October, the highest level in five months and well above the BoE’s objective of two percent. This in turn puts pressure on the UK’s central bank to raise its near-term inflation forecast and refrain from fresh monetary easing. “It raises the hurdle for more asset purchases in the near term,” notes Rob Wood, an economist at Berenberg, as quoted by Reuters. “Inflation … is probably heading up to 3 percent in the new year.”

Yet, traders are aware that high inflation over recent years has not prevented the bank from adopting stimulus measures. Yet, investors are likely to focus on the BoE’s economic projections, with the Financial Times noting that the sterling should be watched closely if the central bank’s inflation report contains “a more upbeat than expected forecast.”


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