Pound Falls After IMF Say BoE To Cut Rates, Provide Further QE
May 22 2012 - 06:03AM
RTTF2
The British currency declined against its key counterparts in
the European session on Tuesday after International Monetary Fund
suggested the Bank of England to lower long-term interest rates and
introduce further Quantitative easing.
U.K. policymakers can consider further monetary easing as anemic
nominal wage growth and broadly stable inflation expectations
suggest weak underlying inflationary pressure, IMF said today.
"Monetary stimulus can be provided via further quantitative
easing (QE) and possibly cutting the policy rate," the lender said
in its Article IV Consultation Concluding Statement.
Citing evidence, the IMF said QE can continue to support demand
by lowering long-term interest rates and improving banks'
liquidity.
The pound was also under pressure after a report showed that
U.K. annual inflation slowed more than expected in April and
reached the lowest since February 2010.
Data from the Office for National Statistics showed that
consumer price inflation fell to 3 percent from 3.5 percent in
March. The figure was slightly below the expected rate of 3.1
percent. Nonetheless, inflation continues to stay above the 2
percent target.
According to a data released by the Department of Communities
and Local Government (DCLG), house prices in the United Kingdom
decreased from last year in March, after growing in the previous
month.
The house price index dropped 0.4 percent year-on-year in March,
reversing the 1 percent growth recorded in February and January's
0.6 percent gain.
Meanwhile, U.K. public sector net borrowing that excludes
financial interventions showed a surplus of GBP 16.5 billion in
April, a separate data from the Office for National Statistics
showed today. During the same period of last year, net borrowing
was GBP 9.1 billion.
The pound dipped to near 3-week lows of 1.4828 against the franc
and 0.8104 against the euro with 1.475 and 0.815, respectively seen
as the next downside target levels. The pound ended Monday's New
York session at 1.4846 against the franc and 0.8096 against the
euro.
After climbing to a 5-day high of 126.09 against the yen at 4:20
am ET, the pound slipped and hit as low as 125.51 after IMF
statement. On the downside, 124.00 is seen as the next downside
target level for the pound. At Monday's close, the pair was worth
125.62.
Fitch Ratings trimmed Japan's credit ratings citing growing
risks to credit profile as a result of high and increasing public
debt ratios.
The long-term foreign and local currency Issuer Default Ratings
were lowered to 'A+' from 'AA' and 'AA-' respectively. The outlooks
on both ratings are Negative.
Against the US currency, the pound reached a 4-day low of
1.5766, falling from a 5-day high of 1.5850 hit at 3:15 am ET. If
the pound weakens further, it may target the 1.575 level. The pair
finished yesterday's trading at 1.5838.
The U.S. existing home sales report for April is scheduled in
the New York morning session.
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