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Surge of the British pound

Weekly Outlook - 15th August 2012

Written by Zoe Fiddes


The British pound has surged this morning following two pieces of important data. Firstly, the BoE Monetary Policy Committee (MPC) have unanimously voted to keep interest rates at 0.5% and the asset purchase program (QE) at £375 bln. This follows last month’s minutes where two members (Dale and Broadbent) voted against an expansion in QE. The MPC also commented that Q3 growth is likely to remain weak but we should see acceleration in Q4 with a boost in real income from lower inflation. Next, the UK’s claimant count change for July, which measures the number of people who claim unemployment benefit, has fallen by 5,900. This is extremely positive news for the UK who faced an increase of 8.1K and 1.0K in claims in May and June respectively. July’s fall can be linked to the Olympic games as data shows that in London alone claims dropped by 2,800 (accounting for 48% of the fall from a region that holds 13% of the UK’s population). The Olympics, London 2012, will have boosted consumer spending, economic output in goods and services and the incomes of British residents but the question is will this have enough momentum to continue for many months or even years, or will we be hit with a post-games economic blues? In the near-term the nation has been pulled together and the success of the games has lifted spirits and the economy but keep your eye on next month’s claims, employment figures and GDP projections for an indication of what’s to come.

On the data release GBP/USD rallied from 1.5660 to 1.5700. In the short-term 1.5700/25 is the next resistance zone and has held so far abreak higher would open up a move to 1.5760. On the downside 1.5660/45 is the initial support and technical analysts have a preference to buy from here.

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