Pound Finds Modest Rally on Surprising Producer Prices

THE TAKEAWAY: UK inflation reaches a 9-month high, as expected -> Producer prices rise an unexpected 3.2% in February -> Pound rises on producer prices

UK annual inflation rose to a 9-month high in February and sent the Pound upwards in an otherwise steady moving European session. Consumer prices rose 2.8% from February 2012, meeting expectations and slightly higher than 2.7% inflation in January. The CPI was 0.7% over the month, according to the UK Office for National Statistics.

The surprise came from producers prices, which rose 3.2% over the month of February, beating expectations for a 1.5% rise and higher than the 1.3% rise in PPI over January. Retail prices rose 0.7% in February, slightly disappointing expectations for 0.8%.

The rising inflation may have been partially responsible for the Bank of England not increasing quantitative easing in March, as the inflation remains well above the central bank’s 2% inflation target. In February, BoE Governor King said that inflation must be looked at within the context of a struggling economy and trying to subdue inflation may hurt growth.

However, the higher annual inflation was as expected, which is why the Pound rise was attributed to producer prices and not the consumer prices. GBP/USD is currently trading close to 1.5120 in Forex markets, and resistance may be seen next at 1.5201, by the 23.6% Fibonacci retracement of the decline from January’s high to March’s low. Support may be provided by a 2.5 year low at 1.4831.

GBPUSD Daily: March 19, 2013

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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Pound Rallies as No New BoE Members Voted to Add to Stimulus

By Benjamin Spier 20 March 2013 10:38 GMT THE TAKEAWAY: BoE voted 6-3 to keep asset purchase target unchanged -> UK jobless claims falls less than expected -> Pound rallies

The Bank of England announced in its minutes today that the vote to not add to the asset purchase target remained at 6-3 for the second straight month. The minutes refuted earlier speculation that more BoE members had voted to increase stimulus, which is why the Pound jumped about 100 points against the US Dollar following the release.

Majority of BoE members agreed that there are limits to what more QE can now achieve, while a minority said further easing could help smooth economic adjustments. Furthermore, most MPC members were worried that further Pound weakness could lead to an unwarranted drop in Pound. BoE Governor King, along with Fisher and Miles, voted for an increase of 25 billion Pounds to the asset purchase target.

The Bank of England members agreed that growth is likely to pickup in 2013. The UK GDP declined 0.3% in Q4, and is now one quarter away from entering a technical triple dip recession. UK inflation was reported at a ten month high of 2.8% in February and well above the BoE’s 2.0% inflation target. BoE’s King said in February that trying to subdue inflation may hurt growth.

Also released today, the UK jobless claims change decline by 1.5 thousand in February, which was less than the expected 5 thousand person drop in jobless claims and down from January’s revised 10 thousand decline in jobless claims. The ILO unemployment rate remained at 7.8% in January, as was expected.

The British Pound found its way well above 1.5100 against the US Dollar following the minutes announcesment. GBP/USD will see further event risk today when UK Chancellor Osborne presents the 2013 budget to the parliament. The pair may see resistance at 1.5201, by the 23.6% Fibonacci retracement of the decline from January’s high to March’s low.

GBPUSD Daily: March 20, 2013

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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20 March 2013 10:38 GMT

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