Wednesday, Nov 11
A week loaded with UK economic indicators will reach its climax with the Bank of England inflation report and the Speech of the BoE governor that will follow. Both events will give the BoE most updated outlook on growth and Inflation. During recent weeks and months markets have been acting rather cautious as the UK was expected to be one of the worst performing economies in the G7. And indeed resent economic indicators pointed tough times for the UK economy. Q3 growth disappointed strongly falling -0.4% while consensus expectations stood at 0.1% the trade deficit continues to expand rising to -£3.5B for the month of September painting a grim picture for the countryís exports and inflation proves to be sticker than expected. In addition today markets will get among other indicators the Unemployment figures which are expected to rise to the 8% mark. Not all UK economic data are negative with UK home prices continuing to raise, retail sales start to rebound with the BRC Retail sales rising 3.8% YoY and the M4 money measure an important measure of credit expansion has moved higher since the beginning of the year. But it is news such as the Fitch news release pointing the UK as a contender for a credit downgrade that keeps investors suspicious and uneasy with the future prospect of the UK economy, hammering the Sterling with each negative data thatís pilling on.
The BoE from its side has increased its QE (Bond Purchase) by £25B less than the 50B expected signaling to investors the BoE is close to ending its bond purchase program and although it is expected to hold them for a while to help credit markets the Bank will eventually start unwinding emergency measures and let credit markets stabilize independently. The Bank is expected to lower its growth prospect for 2009-2010 and although prices tended to rise recently the bank is expected to stress future downward pressure on prices coming from over capacity. Thus the rhetoric of the BoE is expected to signal rate are not expected to rise and when they will start rising, it will be modestly.
Investors from their side will listen carefully to the speech of the Governor Marvin King and will try to price the risk for the Pound. With all the economic data and speeches sentiment for the Sterling is expected to be sensitive and should be closely watched. Any downward revision of the BoE outlook has the potential to fold Sterling bets and snap recent gains.

GBP/USD in Recent Days



The pair still flat in the 1.66-1.69 range.

Keith